Question

What is an IRA rollover? Do you have a personal IRA rollover account and what are the conditions of the account? How does it differ from a traditional and Roth IRA?

Answer 1

An 'IRA rollover' is a transfer of money from a retirement a/c into a Roth IRA/ traditional IRA. This can happen thru a direct transfer / thru check, which the custodian of the distributing a/c writes to the account holder who after that deposits it in another Individual Retirement Account .

IRA rollovers can happen from a retirement a/c like a 401(k) into an IRA/ even IRA to IRA transfer. Most of the rollovers happen when persons switch jobs & desire to move 403(b) / 401 (k) assets into an IRA, but few happen when a/c holders want to switch to an IRA giving more advantages / investment opportunities.

To carry out a direct roller over, an a/c holder has to request his plan administrator to prepare a check & directly send it to the Individual Retirement Account. In IRA to IRA transferals , the trustee from one scheme sends the rollover sum to the trustee from the other scheme.

For the direct transfers, the Internal Revenue Service withholds no taxes. But, if the a/c holder obtains a check he deposits into the IRA, the Internal Revenue Service demands a withholding penalty. Custodians must withhold 10% on checks from IRA disbursements & 20 per cent on disbursements from other retirement a/cs, whether or not the monies are for a rollover. At the time of taxation, this sum appears as taxation paid by the tax filer.

But, if an a/c holder obtains a distribution from a Roth Individual Retirement Account to rollover into a traditional IRA, she doesn’t have to pay any taxes on the disbursement or report it as income because the IRS doesn’t tax disbursements from Roth IRAs.