IRA rollovers require special attention.
You have more than one IRA.
Maybe you established them.
Maybe you inherited one of them.
You are wanting to rollover funds from one to another.
According to a recent Investopedia titled “Common IRA Rollover Mistakes,” there are rules to be followed.
The first is the 60 Day Rule.
How does this work?
Let us say you removed funds from one IRA.
You have exactly 60 days to roll these over into your other IRA.
Some people mistakenly believe this rule means two months.
It does not.
The rule demands 60 days exactly.
What happens if you fail to comply with this strict window?
If you get an extension or a waiver, you must make the transfer by the new deadline.
Otherwise, the funds will be taxed as normal income.
If you are under age 59½, you will also be charged a 10 percent early withdrawal fee.
The second rule is the One-Year Waiting Rule?
What does this mean?
If you have already made a distribution and rollover, you must wait one year before you can make another tax-free rollover.
There are a few exceptions.
What are they?
This rule does not apply for rollover distributions from an employer plan or from a rollover between a traditional IRA to Roth IRA.
A third involves your required minimum distribution.
If you are older than 70½, you must begin taking an annual required minimum distribution (RMD) from your IRA account.
This RMD cannot be rolled over.
It would then be considered an excess contribution.
What can you do?
Before you rollover one account, be sure to remove your RMD so it is not included in the transfer.
The fourth common mistake involves the Same Property Rule.
Essentially this means your rollover must enter into the new account the same as it left the old account.
If you took cash from one, the cash must go into the new account.
You cannot purchase new assets to then contribute them into the new account.
Finally, if you are rolling over from a qualified plan, 403(b) plan, or governmental 457 plan, you should choose to make the transfer a direct rollover.
If the funds are paid to you and then transferred, 20 percent of the amount distributed must be withheld by the payor.
In other words, you will unnecessarily forfeit money from your account.
When making the transfer closely coordinate with the plan administrator.
Taking these steps will help you protect your retirement savings from avoidable fees, taxes, and penalties.
Reference: Investopedia (March 29, 2018) “Common IRA Rollover Mistakes”