IRA Rollover Rules

IRA, or Individual Retirement Account, is a type of retirement savings fund which employed individuals and their spouses are allowed to make contributions into. The Traditional and Roth IRAs are the most popular IRA plans available. The IRS, or Internal Revenue Services, has established different rules and regulations for each of these IRA plans.

Before you start your IRA rollover, it’s important the make sure you are within the current IRA rules and regulations to help you avoid any unnecessary fees and penalties that may occur.

Known the IRA Rules

All individuals who are earning a taxable income during the year are qualified to make contributions. The current Roth IRA rules state that the investors must not exceed this maximum income limit set by the IRS in order to be eligible; and there is no age limit for Roth IRA. With Traditional IRA, however, the investors must be under the age 70.5 years at the end of the calendar year in order to qualify.

IRA contribution rules for “standard” contribution, which is applicable for those investors who are below the age of 50 years by the end of the calendar year, has a maximum limit of $5,000. The “catch-up” contribution limit is for those investors who are 50 years old or older by the end of the calendar year, with a maximum limit of $6,000. These limits are the same for both the Traditional and Roth IRAs.

Of course, there are IRA withdrawal rules that must be followed. For Traditional IRA, the contributions are not taxed, thus the distributions (or withdrawals) are subject to regular income tax. The investor has to wait until he reaches the age of 59.5 years before he can make a withdrawal from his traditional IRA without being subjected to an additional of 10% early withdrawal penalty. Moreover, with a Traditional IRA, there is what we call Minimum Distribution Rule (MDR). If the investor reaches the age of 70.5 years, he will be forced to make regular distributions at a minimum amount required.

On the other hand, the Roth IRA distribution rules are different from the Traditional IRA. Since the contributions to a Roth IRA are taxed right at the moment these are made, all eligible distributions are not taxed. The investor must be at least 59.5 years of age, and the account must have lapsed the 5-year holding period in order to qualify for tax-free and no fee distributions. With a Roth IRA, there is no MDR or forced distribution to be followed.

IRA Rollover

For those employees who change jobs and employers, he may opt to rollover his retirement funds to IRA, in accordance with the IRA rollover rules. There are several ways to do a rollover. An investor may opt to take a cash distribution, which means that the check is made payable to his name and may be subjected to income or withholding taxes and early withdrawal fees. Another way to do a rollover is through indirect rollover. The investor may opt to elect a cash distribution and then deposit the money into the IRA within 60 days to avoid taxes. The best way to do a rollover is through direct rollover, which the check will be payable directly to the new IRA custodian. There is no risk of paying taxes and penalties with this option. The investors must be familiar with these rollover IRA rules before doing any rollover transaction.

  • David Rathbun

    In the event of the death of the employee after retirement,how are the proceeds despersed to there spouse?

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The information provided on this website does not constitute professional financial advice. We do our best to maintain current & accurate information, but some information may have changed since it was published. Please consult your tax or legal advisor(s) for questions & advice concerning your personal financial situation.
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