60 Day Rollover Rule

Many people who want to save for their future opt to open an Individual Retirement Account, or IRA, which allows them to make contributions that will be invested in various types of investments which the IRA owner chooses. Just like any other type of investment accounts, there are several IRA rules and regulations which need to be followed in order to get the most benefit from one’s retirement account. These rules may vary from one type of IRA plan to another.

However, not all employed individuals own an IRA. There are some employers who opt to open another type of retirement investment account for their employees, like a 401k account, for instance; and the employee may choose to rollover his funds from such account to an IRA when he is no longer connected with such employer — that is, if he lost or left his job. Any individual who left or lost his job where he had a 401k account may choose the best option of rolling this over to another retirement savings fund, like the IRA. An IRA rollover is a tax-free distribution from one retirement account and will be contributed to an IRA; and with this, necessary IRA rollover rules must be applied.

What is the 60-day Rollover Rule?

In general, an employee who plans to rollover his other retirement account to IRA has 60 days to make the rollover contribution after he receives the distribution from an employer’s qualifying plan such as a 401k. This rule is applicable for indirect rollovers, which means that the check will be payable to the personal account or name of the account holder.

The 60-day rollover rule simply means that an employee have 60 calendar days from the date the check is received in order to deposit the funds to his new retirement account, or IRA, for instance. It is very important, moreover, to be familiar with the requirements of the receiving financial institution, such as documentation from the prior plan. The investor must already anticipate the processing time and requirements before the new retirement account will finally be opened and the check will be deposited. Depositing the check with enough lead time to avoid a problem is a lot wiser.

Avoid Rollover Fees & Penalties

Understanding this 60-day requirement to deposit the rollover funds is very important and really necessary in order to avoid significant taxes and unwanted penalties. If the rollover funds are not deposited within this time frame, it will be regarded as an early distribution if the account holder is not yet 59 and 1/2 years of age, thus, this will be charged regular income tax, and an additional 10% early withdrawal penalty, just like the penalty for an early withdrawal from IRA.

Furthermore, if the account holder plans to rollover the funds to a Roth IRA, he must meet the eligibility requirements of such account, especially the Roth IRA income limits which are set by the Internal Revenue Services or IRS depending on the account holder’s tax filing status and adjusted gross income.

  • Phillipky1

    This is a terrible article. I say that because it doesn’t warn folks about having to have other money to make up the 20% mandatory tax withholding from any indirect rollover where the rollover funds going to the new IRA are not coming from an IRA (i.e. funds are coming from a 401(k), 403 (b), 457 Deferred Compensation, and any other retirement plan other than an IRA). This can be a serious pitfall.

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