Tax and Money Tip this Week:
Retirement Plan and IRA Rollover Advice
October 31, 2018 | No. 406
When moving your retirement money to an IRA, you should follow this one rule of thumb.
If you fail to follow the rule I’m about to reveal, you can face two big problems.
- First, your check will be shorted by 20 percent.
- Second, you will be on the search for replacement money.
Here is this very important rule of thumb that you need to follow: Move the money using a trustee-to-trustee transfer. Nothing else.
There are two types of transfers that can be used to move qualified plan distributions into IRAs in a tax-free manner: (1) direct (trustee-to-trustee) rollovers and (2) what we will call traditional rollovers.
If you want to do a totally tax-free rollover, do nothing other than the direct (trustee-to-trustee) rollover of your qualified retirement plan distribution into the rollover IRA.
This is easy to do. Simply instruct the qualified plan trustee or administrator to (1) make a wire transfer into your rollover IRA or (2) cut a check payable to the trustee of your rollover IRA (this option is less preferable than a wire transfer).
Your employee benefits department should have all the forms necessary to arrange for a direct rollover.
Mark Vitek, CPA/PFS, CFP®
…until next week.