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IRA & 401(k) Rollovers

An IRA or 401(k) rollover is defined as a transfer of funds from a retirement account into a Traditional IRA or a Roth IRA. This can occur either through a direct transfer or by a check, which the custodian of the distributing account writes to the account holder who then deposits it into another IRA account. If the transfer is done by check, there will be a 20% withholding penalty applied before the custodian issues the check. To avoid the 20% penalty, the rollover must take place directly from one custodian to another.

Many IRAs will only allow one rollover per year on an IRA to IRA transfer. The one-year calendar runs from the time the distribution is made. Most rollovers occur when people change jobs and wish to move 401(k) or 403(b) assets into an IRA. Most IRAs offer more investment choices along with a continuation of tax-free gains and income.

IRA rollovers can occur from a retirement account such as a 401(k) into an IRA, or as an IRA to IRA transfer. A rollover can occur into a Roth IRA provided that the individual’s adjusted gross income is below a certain level in the tax year in which the rollover occurs.