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. Continue reading