Rolling Over Your Company Retirement Account Into Your IRA

When you retire from your company, you may decide to rollover your company’s qualified accounts into your IRA. Make sure you do a Direct IRA rollover to avoid costs and maintain protection.

Even if you have the option of leaving your money with the company’s plan, transferring it to your own IRA may give you more varied investment opportunities. That is because company plans often restrict investments to company designated funds. 

When you decide to rollover your accounts, you may do either an

• Indirect IRA rollover, or a
• Direct IRA rollover

If you make the Indirect IRA rollover, you receive a check from your employer made out to you. Unfortunately your employer is required by the IRS to withhold 20% of the amount you request to rollover for tax payment purposes, in case you do not continue the rollover into an IRA account, but keep the money for other purposes.

In order to sustain no loss to taxes, you must rollover the complete amount your employer withdrew from your account into your own IRA. That means you must make up the additional 20% withheld by your employer, along with depositing everything you received by check from them – all within 60 days.  You will get a credit or a refund for the 20% withheld when you do your taxes for the year.

The Direct IRA rollover is much more efficient. You simply have your employer directly transfer your funds to your own IRA, which you set up to receive the transfer. In this case, no 20% is required to be withheld so you need not worry about coming up with that additional ‘make-up’ tax money or the 60 day limit.

Another advantage of the Direct IRA rollover option into a new IRA account is that it preserves full protection of all your rollover funds against creditors and bankruptcy.

But be careful!  Distributions from IRAs and qualified plans are taxed as ordinary income and distributions prior to age 59½ are generally subject to a 10% penalty which could be costly.

Give us a call so we can help you set up your IRA or other accounts suitable for handling your retirement funds.