Once you’ve found an IRA rollover account that will work for you, you’ll need to determine how to set up the distribution of funds. Generally, there are two different rollover methods for getting the money out of the existing IRA account and into the new one – go over both IRA rollover types before making your final decision.
The first type of rollover called an IRA direct rollover and involves your retirement contributions between the two financial institutions. Your only involvement in the process is to open up the new IRA rollover account and complete some simple paperwork. After that, your new account provider will issue an order to transfer the money to the new account. As long as you’re not doing a direct rollover to Roth IRA, there won’t be any taxes withheld.
On the other hand, if you complete an indirect IRA rollover, the money isn’t issued to the bank, but is given to you in the form of a check. Twenty percent of the total will be withheld off the top for taxation purposes to ensure that you deposit the money into another qualified rollover IRA account. If you do this within 60 days, the withheld funds will be released into the new rollover IRA. However, if you don’t make the deposit within 60 days, the remaining 20% will be used to settle your tax bill, as the IRS will judge the rollover to be a taxable cash withdrawal.
Any time you find yourself needing to move money through an IRA rollover can be a stressful event. After all, this is your retirement income – you want to make sure that you’re doing everything in a manner that will help the money continue to grow for later in life. First, you have to ensure that you’ve set up the correct type of account to receive your rollover funds. Then, you’ve got to make sure that your IRA distributions are set up correctly so that you don’t have to worry about unnecessary. Let’s look at each of these steps to determine the best way to proceed with your rollover IRA.
For starters, you’ll need to go through the different types of IRAs available today to find out which ones will work best for your needs. For example, if you’re thinking about opening a Roth IRA rollover account, you’ll need to make sure that you meet the minimum income requirements. People who are either married or filing jointly must have an adjusted gross income of less than $167,000 per year (or $120,000 if you’re single).
In addition, be aware that you will have to pay taxes on any money that’s transferred from an existing tax-deferred account to a rollover Roth IRA. This is because Roth IRA contributions are made on an after-tax basis – meaning that the money invested in these types of accounts can be withdrawn without paying taxes later in life. Many people see this as a benefit, but you must be prepared to shoulder the initial tax burden if you rollover funds from an account whose contributions were made before taxes were taken out.