In our experience, there are 3 Rollover IRA mistakes that people commonly make that can greatly affect their retirement funds and their future. Let’s look at those mistakes and make sure we avoid them at all costs.
- First, a transfer from one IRA to another retirement account can only happen once per year. Rollover IRAs are incredibly flexible, but they do not allow all the rollover transfer to occur within months of each other. This means we need to make sure that we create a plan of how we want the assets used and where we ultimately want the assets deposited, as well as how we will make sure you are earning strong returns as you rollover between retirement accounts. The one time you are allowed to rollover your retirement funds within less than a year is when you receive a distribution from your employers 401K due to a job change or loss.
- Second, often when setting up your Rollover IRA, it will through a new brokerage company. When moving your money between an existing retirement account to a newly created account it is important to have the funds deposited directly from the old broker to the new to avoid any chance of being hit with the 60 day rule. If you receive the funds personally from your past IRA or 401k and have not moved them into the Rollover IRA within 60 days your assets will lose their tax deferred status and will be subject to taxes and a minimum 10% penalty if you are under the age of 59 ½. Do not let this happen.
- Third, if you do receive your retirement funds directly, you cannot purchase any assets with those funds until you have moved them into your new Rollover Account without incurring tax penalties. An example would be that you receive a disbursement from your previous employers 401k when you change jobs. If you purchase stocks or bonds with that money before moving it into a new retirement account, you will not be allowed to move those stocks and bonds into your new account and will be subject to taxes by the IRS. This is called the “Same Property Rule” and is another reason to have your 401k rollover to IRA transfer completed between your brokers instead of ever taking possession of the money personally.
This concludes our 3 Rollover IRA mistakes post. Let us know if you have any questions concerning your IRA rollover or 401k rollover and we’ll be happy to get you on the right path.
{ 3 comments… read them below or add one }
Thank you for your article. It’s helped me understand my options and alleviate some of my anxiety through this challenging time. Here is my situation:
-I was laid off in Jan. 2009
-I was finally able to access my employers 401k on 4/26/09.
-Called my former employers 401k brokerage company to do the rollover to my Traditional IRA account on 4/27/09.
-Received the check (payable to my bank for the benefit of my IRA account) on 4/28/09.
-I deposited the check to my Traditional IRA account on 4/29/09.
Did I follow the instructions carefully (I don’t want to lose my tax deferred status)?
Addition to my previous post:
-I don’t have any other 401k accounts except for the employers 401k I mentioned in my email
-I don’t have any other IRA accounts except for the Traditional IRA I mentioned in my email
-This is my first and only roll over/retirement account change — ever (so i’m new to this)
Thanks again.
I have a traditional IRA and have an account with Fidelity Investments. Can I transfer that sum directly to my IRA account without a penalty. Thanks