Qualified Plan for IRA Rollover Distribution

IRAs have another function. If you are entitled to a lump-sum distribution when you leave an employer with a qualified rollover plan, you can simply rollover it to an existing or new IRA. Don’t worry about co-mingling rollover IRAs and the traditional IRA. That restriction went away some years ago. But, you can’t co-mingle a Roth and traditional IRA rollover accounts.

Make sure that your rollover qualifies as a “trustee-to-trustee” transfer. Don’t take personal possession of a check make out to you, or you might be in for an unpleasant tax surprise. Make sure it’s made out to the receiving institution for the IRA—not you personally.

By the way, you wouldn’t want to roll over your non-deductible contributions if you made any. Take them as a separate check and invest them in a regular brokerage account. However, the accumulated gains on the non-deductible contributions can and should be rolled over to your IRA.

You may need to transfer assets from one qualified account (such as a 401k into another qualified IRA). In so doing, simply ask for the proper paperwork from the financial institution that is the custodian of the IRA into which you want to rollover money. In a trustee-to-trustee transfer, the funds go directly from one financial institution to the other. This is important. If you receive the money, the IRS will consider it to be a distribution subject to taxation and possible penalties, unless you roll it over to another IRA within 60 days. If, despite this warning, you receive the funds directly, and want to roll them over to another IRA yourself, you should only deposit the money with a bank or financial institution you know to be trustworthy, and obtain a receipt at the time of deposit. Never pay it to a third-party and trust them to deposit for you. If you do, you open yourself up to becoming a victim of fraud.

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