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.

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.

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.

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.

The second form of rollover is known as an indirect rollover, or a 60 day rollover. In this case, the original financial institution makes out a check directly to the IRA holder, who must then deposit this IRA rollover contribution into the receiving institution within 60 days. If this deadline of IRA rollover isn’t met, the funds will lose their status as IRA funds, meaning that they may be taxed as ordinary income and subject to additional penalties.

A few additional rules apply to rollover IRAs.  For example, a person can only make a rollover deposit once every 12 months from the same account.  If they have more than one IRA, they can make a rollover deposit from each.  A rollover is reported to the IRS, although this is typically handled by the receiving institution and doesn’t mean that taxes will come due on the rolled over funds.

Another common type of rollover involves moving assets from an employer-sponsored retirement account into a personal rollover IRA.  These accounts have no IRA rollover limits on them, so you’re free to move as much money as you like from one account to the other.  Why do this?  In many cases, personal IRAs offer a greater range of investment options – and thus, a higher potential rate of return – than most employer-sponsored plans, which are typically highly restricted.

But what type of retirement plans are actually eligible to be moved into a rollover IRA?  In fact, there are several, including the following:

• Profit-sharing plans
• 403(b) accounts
• 401(k) accounts
• QRP/Keogh accounts
• SEP IRAs
• Simple IRAs

In addition to these types, defined benefit plans and ESOP accounts may also be eligible, although there may be some additional stipulations to rolling over an IRA that has these types of contributions from the employer.  In order to complete this type of rollover, you’ll need to have reached retirement age, became disabled, or left the company altogether.  You may also be eligible for a rollover if your past employer terminates the retirement plan.

If you don’t want to rollover your assets from a previous employer’s IRA into a rollover IRA, you do have a few other options.  The first is to transfer the funds to the new employer’s retirement plan.  Another option is to simply leave the funds in the previous employer’s retirement plan, where they will continue to accrue interest.  Finally, you can cash out the retirement plan, but you’ll incur some penalties and will have to pay the IRS taxes on the money, which can result in a net loss of 50% of the IRA funds.  In most cases, an IRA rollover is the option that will best advance your retirement goals.

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.

The first thing you’ll need to determine is what kind of IRA account you want to set up.  This can vary widely, depending on your lifestyle and retirement needs.

If you’re unsure about which kind of IRA rollover account will work best for you, you may want to consider the type of account that the money is being transferred from.  For example, if you’re taking money from a Roth IRA, you’ll probably want to move it into another Roth IRA.  The reason for this is that the money in this type of accounts has already been taxed, so that it won’t be taxed upon withdrawal.  If you do a Roth IRA rollover to a traditional IRA, then you’ll wind up paying taxes on the money twice.

On the other hand, if you want to move money from a traditional IRA to a SEP, a Simple IRA or another Traditional IRA, you shouldn’t encounter any problems.  If you’re thinking about moving your funds to a Roth IRA, know that this is a possibility – as long as you meet the Roth IRA rollover 2010 income limits and are willing to pay taxes on the money.  To make sure that this is done correctly, you’ll most likely want to go with a direct rollover to Roth IRA so that your bank can withhold the money that will be needed for the IRS taxes.

If you’re looking to complete a Simple IRA rollover with funds from this type of account, know that you can transfer these funds to almost any other type of retirement account.  However, if your new account is a Simple IRA account, be aware that the only type of rollover it can receive is one that comes from another Simple IRA.  You may also be required to meet minimum time investment restrictions – your financial advisor can give you more details as needed.

Finally, if you’re self-employed or own your own business, you might want to consider an SEP IRA rollover.  The reason for this is that an SEP IRA is a particular type of retirement account that allows you to contribute more money than most other IRAs – up to a maximum of $49,000 each year.  In contrast, traditional IRAs and Roth IRAs typically limit you to contributions of only $5,000 per year.

Once you’ve decided on the kind of IRA rollover account that will work best for you, go to your financial advisor or banking institution and ask them to begin the transfer.  You may need to complete some simple paperwork to indicate when and how the rollover should proceed.  If you have any questions, your advisor or the manager of your new IRA account should be able to assist you.

First, you’ll need to know what type of rollover IRA you have. Is it a Roth conversion account? A 401k rollover IRA account? As you might expect, the type of rollover account you have will make a difference in terms of which types of accounts it can accept a rollover from.

The easiest type of rollover to do is one that rolls over a particular type of account into the same type of account – known in the financial world as the rule of “like accepts like.”  For example, if you have a 403b account, you can rollover to another 403b account.  Or, if you have a Roth IRA, you can perform a Roth IRA rollover to the same type of account.  If you have a 401k account, it can be rolled over into another 401k.  Every type of IRA can accept money from the same type of account, although in the case of a designated Roth IRA, the transfer must be a trustee to trustee transfer.

In addition, any type of account can be rolled over into a Roth IRA, as long as the necessary taxes are paid on any funds coming from pre-tax accounts.  This is because a Roth IRA is a different type of IRA which accepts contributions that have already been taxed.  If you’re performing a Roth IRA rollover, you’ve got to pay income taxes on those contributions first.  The advantage to this, of course, is that you won’t pay income taxes again when that money comes out of the account in retirement.

Alternatively, if you have a Simple IRA, know that it can receive money only from another Simple IRA.  If you’re looking to roll money out of a Simple IRA, you’ll have to wait for a period of at least two years from the time you first began participating in the account to roll the funds over into another type of account, unless you’re moving your funds directly into another Simple IRA.

As for the other types of rollover IRA accounts, know that if you have a traditional IRA, SEP IRA, 457b, 403b or qualified pre-tax plan, it can accept transfers or rollovers from any other type of account, with the exceptions we have previously discussed.  Because these types of accounts are much more commonly used than the few exceptions described above, you’ll likely find that your rollover will proceed without any issues.

But if you’re still confused, you can find more information at the IRS website.  Better yet, meet with the accountant who prepares your taxes and/or your financial advisor to discuss the impact of a rollover IRA on your retirement holdings.  It’s a good idea to meet with these professionals any time you’re considering a financial transaction that will have implications for your taxes or retirement years.  They can help you to roll confidently in the right direction.

If your employer offers some form of retirement savings plan, such as a 401k or 403b, be sure to consider that provider, as this is a very convenient option for your IRA rollover.  You aren’t limited to that provider, of course, as you can also open a number of different types of IRAs as an individual.  However, know that a retirement account set up through your employer may offer advantages that an individual account can’t.  For example, one of the most important advantages you may get by choosing the retirement savings plan offered through your employer is matching contributions.

On the other hand, those matching contributions may not mean much if the retirement savings plan your employer offers doesn’t have a good track record of return on investment.  For tis reason, it may make sense to put some of your retirement savings into your employer’s plan, but perform an IRA rollover transfer that moves most of your account funds into a privately-held retirement savings vehicle.  To determine which choice is right for you, you’ll have to compare plans carefully before choosing your provider.

Next, you’ll want to be sure to pick an account provider that offers the type of rollover IRA account you’re looking for.  Chances are you’ll find a number of different providers that offer the type of account you want, so how do you choose?  You might find it helpful to create a grid where you can jot down the information you uncover about each potential provider.  This will allow you to compare “apples to apples,” as they say, and will help you to base your decision on sound information.

Consider also the amount of money required to open the IRA rollover account.  Chances are this will be of little consequence if you’re using IRA rollover money, as you’ve likely already accumulated more than the amount required in your existing accounts.

In addition, you should consider the fees charged by plan administrators.  Fees are usually charged annually, and will vary from provider to provider.  Be sure to read the fine print for any commissions or fees charged when you make investment changes.  You want to make sure that as much of your money as possible stays in your IRA rollover account, rather than being paid to account administrators.

Next, look at the average performance of the IRA rollover accounts managed by the providers you’re considering.  Of course, past performance is just that – past.  It’s no indicator or guarantee of how a particular account will perform in the future.  However, looking at how a number of different providers have fared over the past five years will give you a basis for comparison to consider before initiating your IRA rollover.

Finally, give some thought to customer service.  Were the people you spoke with helpful and patient?  Was the documentation you received easy to read and understand and did you get clear answers to your questions?  Did you feel pressured to make a decision?  Keep in mind that you’ll likely be working with your provider for a number of years, so you’ll want to go with a rollover IRA account provider that treats you – not just your money – with respect and dignity.

There are three possible ways to transfer funds into your rollover IRA account.  Let’s start with the most undesirable and work our way towards the most desirable option.

The most undesirable way to transfer funds to your rollover IRA account is to withdraw your money and make the deposit yourself.  But why is this so undesirable?  First of all, because any time you make a request to withdraw money from your account, the manager or trustee is obligated to withhold a percentage of the money for the IRS – typically 20%, which comes right off the top of your account balance.

Assuming you deposit these funds into another qualified retirement account within 60 days, you won’t be subject to any additional penalties.  But if you hang on to the money for even a day longer, you’ll also be subject to early withdrawal penalties if you’re younger than 59 ½ years old, as well as federal and state income taxes on not only the amount you contributed, but also on any interest you earned, according to IRA rollover rules.  As you might imagine, all of these fees, taxes and penalties can significantly reduce the size of your retirement savings.

You can improve on this situation somewhat by asking the manager or trustee of your account to issue a check to you that’s made payable to the manager or trustee of your new rollover IRA account.  If you get that check deposited and credited into your new rollover IRA account promptly – within the time frame established by the IRS – you may avoid owing any penalties, fees or taxes.

However, bear in mind that this time frame is very inflexible – you hold all the responsibility for making sure things go smoothly, and there’s still a chance you could get hit with taxes and penalties.  You’ll also have to make sure that you don’t deposit that check by accident into any of your other accounts.  But fortunately, you don’t need to risk these penalties or inconvenience yourself in the first place.  There’s another IRA rollover transfer option that you can take advantage of that eliminates these scenarios entirely.

In a direct rollover, the manager of the rollover IRA account will first make sure your rollover account is ready to receive funds and will then contact the manager of your existing IRA to request that the funds be sent over.  The manager of your existing account will then transfer the funds directly to the rollover IRA, either by issuing a check that’s delivered directly to the rollover IRA manager or via an electronic transfer – whatever works best for the two parties.

Your entire role in this transaction consists of making the request and completing some paperwork (which the account manager can help you with) to make the IRA rollover request official.  Once this documentation is complete, all you have to do is sit back and wait for the transfer to be completed, content in the knowledge that you won’t be responsible for unnecessary taxes, penalties and withholding fees.