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Video Transcript

If you’re changing jobs or retiring, it’s important to know the rules regarding moving funds from your employer sponsored retirement plan.

The wrong move could cost you in income taxes and early withdrawal penalties.

There are two basic ways to move retirement plan assets from one retirement plan into another with no tax consequence.

With a direct rollover your financial institution or plan directly transfers the payment to another plan or IRA; no taxes are withheld and your account continues to grow tax-deferred.

With an indirect rollover, a check is made payable to you. You have 60 days to deposit it into a Rollover IRA – but indirect rollovers are subject to 20% withholding.

For example, if you had $10,000 eligible to rollover, your employer would withhold $2000 and you’d get a check for $8,000. You’ll get the $2000 that was withheld back when you file a tax return, either as a refund or a credit toward any tax owed.

However, in 60 days you still have to deposit the entire $10,000 in a rollover account – the $8,000 from your employer plus $2000 from your own resources. Any amount you don’t rollover is considered income, and subject to taxes when you file your return. You could also face a 10% early withdrawal penalty, depending on your age.

To learn more about how to avoid complications with a retirement plan rollover, give us a call today.

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