I am trying to gather info on the IRA rollover. I am piecing together info I found on the web.
1. Can I Use an IRA Rollover to Move Funds Out of My Company Retirement Plan While I Still Work There?
Probably not. Most company retirement plans do not allow you to roll funds out of the plan while you are still employed. To find out if they do, you can call your plan sponsor, and ask if they allow what is called an "in-service distribution".
Does AT&T allow?
Does TIAA/CREF allow?
An in-service distribution is a different type of transaction than a loan or hardship withdrawal. An in-service distribution is a transaction where you can rollover a portion of funds in your plan into a self-directed IRA account while you are still employed. Only some plans allow this.
No Longer Employed
Once you are no longer employed, it may make sense to roll funds from your plan into an IRA account. At that time, to avoid tax withholding, you'll want to choose what is called a direct IRA rollover.
You can avoid mandatory tax withholding (explained below) by requesting a direct rollover.
2. Do I Have To Report IRA Rollover Transactions On My Tax Return?
Yes. IRA rollovers are reported on your tax return, but as a non-taxable transaction.
A rollover is not a taxable distribution and does not trigger taxes and penalties.
Contrast that with a distribution where the funds are sent to you and you cash the check and spend the money. In that situation expect to pay taxes on the distribution and possibly an early withdrawal penalty tax.
To make sure you don't pay tax on an IRA rollover or transfer, carefully explain any IRA rollover or transfer transactions to your tax preparer, or double check all documentation if you prepare your own return.
3. Can Spouses Combine Retirement Accounts?
Spouses cannot combine retirement accounts. A retirement account must be titled in one person’s name. A spouse can be named as the beneficiary, but you cannot combine your IRA with your spouse. At your death, your IRA can be rolled over or combined with the surviving spouse’s IRA, but not while you are both living.
Advantages of an IRA rollover
1. More control over the investments. Within your 401(k) plan or other company plan a set number of investment choices are provided for you.
2. Potentially lower costs. The funds inside your company plans charge fees in the form of an expense ratio. You can choose similar quality investment with lower fees by using index funds in an IRA rollover account.
3. IRAs may make things easier on beneficiaries. Not all company retirement plans offer the same rules as to how your beneficiary can withdraw funds. In an IRA account, your beneficiary will have the option to take distributions out slowly over their life expectancy. They may or may not have this option if the money stays in the company plan.
4. Ability to choose safe investments. Company retirement plans do not usually offer a wide selection of ultra safe investments, like government bonds, certificates of deposit, and fixed annuities. If you want no risk, you may have more choices by rolling your money to an IRA.
4. Maximum Age Limit for IRA Contributions
ROTH IRA - There is no upper age limit to make a contribution to a ROTH IRA.
Traditional IRA - For a Traditional IRA, once you reach the year in which you turn age 70 ½ you are no longer eligible to make a Traditional IRA contribution.
An IRA contribution is not the same thing as an IRA rollover or IRA transfer. When you move money from a company sponsored retirement plan (such as a 401k or 403b) directly to an IRA that is called a rollover. You can do this at any age.
Comments