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How Does an IRA Rollover Work?

If you are wondering how an IRA (Individual Retirement Account) rollover works, here is a quick overview of IRAs and their rollover rules. These rollover rules will help you avoid common mistakes and penalties while growing your savings.

Read on to learn how an IRA rollover works and if an IRA is a good option for you.

What Is an IRA?

IRAs icon

An IRA is a financial product designed to help account holders save for retirement. There are two main kinds of IRAs: Traditional IRAs and Roth IRAs.

While there are key differences between the two types, both offer benefits to individuals looking to grow their retirement savings.

What Is an IRA Rollover?

An IRA rollover is when an individual moves funds into an IRA from another eligible retirement account, such as a 401(k) or other IRA.

How Does An IRA Rollover Work?

There are two types of Traditional IRA rollovers:

Direct Rollover

The custodian of the original retirement account sends the distribution directly to your IRA, either as a check or wire transfer. Because you do not take possession of the money, no taxes are withheld.

IRA to IRA Rollover

If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all, or a portion of it, into an IRA within 60 days. Only in extremely limited circumstances will the IRS consider waiving the 60-day rollover requirement .

There are restrictions regarding which types of accounts you can move money between, as well as how often you can move money from one account to another. There is a limit of one rollover per 12-month period on a rolling calendar for all IRAs.

Why Initiate an IRA Rollover?

plan for your future

A rollover occurs when an individual in certain types of retirement plans receives a qualifying distribution from the plan (reported to the IRS), and re-deposits all or any portion of the distribution in another retirement plan.

Many people initiate an IRA rollover when they need to move money from their employer-sponsored 401(k) plans to another account, and some will initiate a rollover if they are leaving their place of employment or looking for lower fees and/or better rates.

When you roll over a retirement plan distribution, you generally do not pay tax on it until you withdraw it from the new plan.

However, if you don’t roll over your payment within the given time period, it will become taxable and you may be subject to additional tax unless you’re eligible for one of the exceptions to the 10% additional tax on early distributions.

Transfers

A transfer is available between IRA plans only and does not have to be reported to the IRS. Transfer requests must be signed by Synchrony Bank and all required paperwork must be received before any funds are requested.

Trustee-to-Trustee Transfer

Unlike rollovers, trustee-to-trustee transfers are unlimited. If you’re getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA. No taxes will be withheld from your transfer amount.

Will Taxes Be Withheld from My Distribution?

Synchrony Bank does not provide tax advice so be sure to contact your tax advisor or financial consultant before opening or contributing to an IRA, or making any rollovers of transfers of an IRA or 401(k).

Call Synchrony Bank for IRA Rollover Information

Synchrony Bank offers a range of financial products, including IRAs, award-winning customer service, and convenient online access. Consult your financial or tax advisor before contributing to an IRA.

For help with how an IRA rollover works, call 1-844-345-5789 today.

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Sources:

IRS: https://www.irs.gov/retirement-plans/retirement-plans-faqs-relating-to-waivers-of-the-60-day-rollover-requirement

IRS: https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

IRS: https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions


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