Today’s highly mobile workforce has
people changing jobs to climb up the career ladder rather than staying in
one place for their entire career. Those
who are changing jobs must deal with multiple retirement plans, but there
are options available concerning your retirement account.
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If you receive a distribution from your
pension or company retirement plan, you must make a decision about what to
do with that lump sum within 60 days of the date you receive your money to
ensure that you don’t incur heavy taxes and penalties.
You’ll also want to take immediate steps to invest those funds
for continued growth.
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You cannot directly roll your
retirement account into a Roth IRA. You
can roll your account into a traditional IRA and then convert it to a Roth
IRA.
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One of the simplest, most flexible ways
options is to roll the distribution directly into an IRA.
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Direct
Rollover into an IRA:
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 Your
employer would directly transfer your funds into an IRA or send you a
check
that is payable to the financial institution housing your IRA. |
There
is no required withholding.
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Indirect
Rollover into an IRA:
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Your
employer sends you a check, but they is legally required to withhold 20%
for
income tax purposes
.
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You
have 60 days to put the funds in a different qualified retirement account
in order
to avoid penalties for taking a non-qualified distribution. |
If
you fail to reinvest the distribution before the 60-day deadline, you are
required to
pay a penalty, plus ordinary income tax on the distribution
.
|
You
are responsible for contributing the entire amount of your previous
account,
which means you must make up the 20% difference out of your
own pocket
.
|
| You
will be able to recover the money later when you file your income taxes.
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If
you have difficulty replacing the 20% withholding, an indirect rollover
could be
problematic.
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| An IRA Rollover provides
an ideal way to continue to benefit from a tax-deferred retirement
savings. If you decide to
rollover your distribution into an IRA within 60 days, you avoid paying
taxes. Your account continues
to grow tax-deferred and can even be moved into another employer plan
later. Mutual fund companies
can set up an IRA Rollover for you.
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