401(k) & Other Retirement Account Rollovers

Rolling over your 401(k) and other qualified retirement accounts into IRAs has many benefits:

• Provides maximum investment choices to help you create a portfolio moreappropriate for your specific situation. Customize a highly diversified portfolio to hopefully provide more consistent returns.
• Rolling over to an IRA can lower your costs by using low expense ETFs. Many 401(k) providers charge custodial and administration fees and the mutual funds choices probably have high internal expenses.
• Allows you to keep on earning high interest on your retirement savings under tax-deferred conditions.
• It can allow you to avoid income taxes and penalties. An additional 10% penalty on withdrawals before age 59 1/2.

There are two ways to move your retirement money to another retirement account:

1. Rollover: A rollover occurs when an employee physically receives the check in their name and then deposits the amount in a rollover IRA or, sometimes, into another qualified plan or another SIMPLE. This is treated as a cash out transaction and your employer will be required to withhold a 20% tax amount. A rollover of distributions from qualified plans, IRAs, 403(b) plans, SEPs, and SIMPLEs can be made tax-free if the rollover is made within 60 days of the receipt of the distribution. Only one rollover is permitted per year.

2. Direct Transfer: The direct rollover or transfer is accomplished by the financial institution making payment directly to another qualified plan or rollover IRA. The money will be electronically transferred or sometimes a check will be mailed to you. If the check is mailed to you, it has to be payable to the financial institution where your new retirement account is held. Again, you have 60 days to deposit the check into your new account. Any number of transfers can be made in a year. If a direct rollover or transfer is used, the distribution is not subject to a 20% federal tax withholding.

The 20% withholding is mandatory for a rollover in the event of the employees death. But, there are two exceptions:

• Distributions due to the minimum distributions requirement rules
• Distributions that are part of a series of substantially equal payments.

These distributions can not be rolled over.

A rollover of a SIMPLE IRA may be made only to another SIMPLE IRA during the first two years of an employee's participation in the plan.