Author Archives: bobrichards

Rollover IRA Account – How it Works

Rollover IRA typically describes the transfer of funds from a 401k or employer plan to your own IRA account but can also describe moving funds from one IRA to another.  In this blog, we discuss all of these movements and how to do them correctly to avoid taxes and penalties.

Another way to classify rollover IRA accounts is to call them target accounts, meaning that they’re the target for the money that’s being rolled over.  Most people will initiate an IRA rollover when they have a new job or when they’re trying to consolidate several retirement accounts into one large account.  This consolidation makes the management of your retirement savings much easier and is a very common reason to do an IRA rollover.

When you want to roll money into your rollover IRA account (or target account), you begin by contacting the administrator of the rollover account.  In some financial institutions, this administrator is called the manager or trustee, although the actual terminology really doesn’t matter.  Basically, you need to speak to the person who is responsible for the account in order to initiate your IRA rollover.

It’s a good idea to know this person and develop a professional relationship with them.  After all, you have, in effect, put them in charge of watching your money.  By building this relationship, you’ll find it much easier to get your manager to answer any questions you have about how your money is being invested and to help you make changes to your retirement savings strategy as your needs change over the years.

If you’re attempting to consolidate several retirement accounts, you need to be very careful when choosing which kind of retirement account to open.  Some accounts can accept transfers from many different kinds of IRAs, while others can’t.  It would be counterproductive to set up an IRA that can’t receive money from your established accounts, so be sure to do your research before initiating an IRA rollover.

A general rule of thumb to keep in mind is that “like can receive money from like.”  Your best bet when choosing which kind of IRA to set up is to set up the same kind of account as your previous IRAs.  This way, there won’t be any problems rolling money into the rollover IRA account.  Generally, money can move easily from one account to another account of the same type or tax status designation, although some exceptions exist.  Contact your account manager or financial advisor if you have specific concerns about your proposed IRA rollover.

When you decide to roll money into your target IRA, the first person you need to contact is your account manager.  This person will help you to begin the process of getting the funds from your old account into the new one.  Unless there’s a very specific reason not to, you’re going to want to use the direct IRA rollover method.  In a direct IRA rollover, your money is transferred directly between the administrators of two accounts.  This is the simplest way to maintain the tax-deferred status of your investments and avoid any unnecessary taxes or penalties.
By understanding these simple guidelines, you’ll be able to set up and use a rollover IRA to give you greater peace of mind about your investments and greater control over the funds you’re setting aside for retirement.

Rollover IRA Contribution Limits

One of the first things you’ll need to realize about rollover IRA contribution limits is that rollover IRAs aren’t technically a distinct retirement account type recognized by the IRS.  However, it’s useful to think about your new IRA as a rollover IRA, especially when trying to consolidate all of your existing retirement investments in one place.  In addition, there are some specifics that you’ll want to keep in mind with regards to changes made to the retirement tax laws for fiscal year 2010.

Overall, the IRA contribution limits for 2010 have remained unchanged.  Since fiscal year 2008, the maximum amount of money that people under age 50 can contribute to any type of IRA is $5,000.  In the future, this limit will increase at a rate that’s tied to inflation.  In addition, there’s one other addendum – if you’ll be 50 years or older by the end of 2010, you can contribute an extra $1,000, for a total of $6,000.

These rules apply to both regular, non-Roth IRAs and Roth IRAs, although Roth IRAs are little more complex.  In this case, there are maximum income limits for contributions that apply to Roth IRAs.  Married individuals who file jointly can, in fiscal year 2010, contribute to a Roth IRA only if their modified adjusted gross income (MAGI) is below $167,000.  Individuals who wish to contribute to a Roth IRA must have a MAGI of less than $101,000.

However, a loophole was added to these rules for the 2010 tax year that makes it possible for anyone to convert a regular IRA to a Roth IRA, regardless of annual income.  In the past, similar income restrictions as those on regular Roth IRA limited eligibility in terms of those who were eligible to convert funds to a Roth IRA through an IRA rollover.  The change means that more people are able to take advantage of the benefits of Roth IRAs.

Be aware, though, that this loophole can create an interesting paradox.  Individuals and married couples that don’t meet the income restrictions for Roth IRAs are eligible to convert funds to this type of retirement account, but may not be able to contribute any further funds to them.  In these cases, it’s important to use the Roth IRA rollover as just one tool in your retirement toolbox.  While it may make sense to place some funds in an after-tax Roth, additional investment strategies will be necessary for future contributions.

So while there have been some very advantageous changes to these limitations, you need to ask yourself what’s in the best interests of your long-term goals.  Just because you can do something – such as a Roth IRA rollover – doesn’t necessarily mean you should.  When you make changes to your IRAs, you may be making changes in the tax status of the money you have set aside, which has the possibility of opening you up to a tax liability.

Your best bet is to consider all of your IRA rollover options with the advice of a financial professional.  Tax law can be complex, especially with the recent changes that have taken place.  To get the most out of your retirement savings, work together with a financial professional to make a plan that works for you and your family.

Rollover IRA – Understanding the Advantages


As you learn more about the financial tool known as a rollover IRA, you’ll see how easy it can be to use this type of retirement savings account to both maximize the return on your money and to consolidate any wayward retirement accounts that you’ve acquired from previous jobs.  These are just a few of the primary advantages of a rollover IRA.

The first thing you need to know is that “rollover IRA” isn’t technically an IRS definition.  Instead, it’s a term for you, the account holder, to use to classify your retirement accounts when you’re moving money around.  In some cases, rollover IRAs are called “target IRAs” because they’re the “target,” or destination, of the money that’s being moved.

One thing you need to have with your retirement investments is the ability to make changes as necessary, in order to keep up with your changing needs and goals.  This can be hard to do if you have several retirement accounts in different locations.  In fact, it can be such a cumbersome task that you might be tempted to just leave the accounts as they are, rather than going to the trouble of making changes to all of them.  Consolidate your various accounts using a rollover IRA account, and the process of making adjustments will become much easier.

Another advantage of utilizing a single rollover IRA is that having a larger account may give you more investment flexibility.  Certain investments may have minimum investment requirements, so a larger account – which you create by consolidating various accounts using a rollover IRA – may make you eligible for these different options.  And when it comes to investing, having more options is a definite advantage.

Another advantage to establishing a rollover IRA is that you may have the opportunity to open a different type of account than your previous employers offered.  For example, as of 2010, it’s easier than ever to choose the Roth IRA structure for your rollover IRA.  Maximum income restrictions on Roth IRA rollovers have been eliminated and, if you rollover money this year, you’ll be allowed to defer taxes – paying half in 2011 and half in 2012.  In many cases, there are several advantages to choosing a Roth IRA that outweigh the need to pay taxes now rather than at retirement.  Considering these changes, there’s never been a better time to talk to a financial planner to find out if a Roth IRA is the right choice for you.

If you have multiple accounts, you can elect to designate one particular account as your rollover IRA.  However, you also have the option of establishing a new account as an individual.  If you’re considering an IRA rollover, it’s probably a good time to stop and take a good look at how your accounts are performing and whether the accounts you have are in line with your personal retirement savings goals.  In fact, even after you complete your rollover, it’s a good idea to set up a regular review with your financial professional to make sure that your investments are on track and are moving you toward your financial goals.

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. Continue reading

What Types of Accounts Can Be Transferred to Your Rollover IRA?

When it comes to IRAs, the many names that exist for all of the different types of accounts can get confusing. If you’ve recently established a rollover IRA, you may be confused as to which types of accounts can be transferred into that rollover IRA. The following are some guidelines that will help you understand the process. Continue reading