IRA: Understanding Rollovers

Interactive Brokers offers three IRA account types for U.S. persons:  Traditional IRA, Roth IRA, and Simplified Employee Pension plan IRA (a.k.a. SEP-IRA).  Rollover transaction options may be available into or out of each account type.

The term IRA Rollover refers to several different movements of funds between U.S. retirement accounts.  Select from the list below for a brief description of each rollover type available, as well as the their guidelines.

 

IRA to IRA Rollover

Direct Rollover

IRA to Employer Sponsored Retirement Plan Rollover

12-Month Rule

60-Day Period

 

Rollover Types

1. IRA to IRA Rollover

Funds withdrawn from an IRA and re-deposited into an IRA within 60 days may be eligible for treatment as a 60-day rollover contribution.  If eligible, this movement of funds may qualify as an IRA withdrawal of funds without any penalty or taxes.   

Tax Reporting - Principal Trust will report the withdrawal of funds as an IRA distribution and the re-deposit of funds as an IRA rollover contribution to the IRS.   The IRS receives Form 5498 (IRA Contributions) and Form 1099-R (IRA Distributions).  US investors do not include the Form 5498 with their tax filing, but do include the 1099-R.  Click 2012 Tax Reporting for details.

2. Direct Rollover

Funds received or withdrawn from an employer-sponsored retirement plan and deposited directly into an IRA.  The 20% tax withholding of funds by the plan sponsor is waived when funds are rolled directly into an IRA. 

Tax Reporting - Principal Trust will report the deposit of funds from an employer-sponsored retirement plan as an IRA rollover contribution to the IRS.  The IRS receives Form 5498 (IRA Contributions).   US investors do not include the Form 5498 with their tax filing.  Click 2012 Tax Reporting for details.

3. IRA to Employer Sponsored Retirement Plan Rollover

Funds moved directly from an IRA into an employer's retirement plan are deemed rollover contributions.  Not all retirement plans accept rollovers from IRAs.  Investors should consult the plan sponsor to determine eligibility.

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Limitations & Guidelines 

12-Month Rule

Distributed funds from an IRA may be rolled into another IRA only once every 12-month period.  The rule applies to funds withdrawn from each separate IRA.  The 12-month period begins the date funds are received, not on the date funds are deposited into another IRA. (See IRS Publication 590 for limited exceptions to the rule.)

60-Day Period

Distributions from an IRA or Employer Sponsored Retirement plan may remain eligible for the tax-free rollover treatment only when contributed to another qualified plan within 60 days of receipt.  Generally, funds re-deposited outside of 60 days are not tax-free.  The withdrawal of funds is taxable. The deposit into another IRA is treated as a regular contribution.  (See IRS Publication 590 for limited exceptions to the rule.)

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Disclaimer:  IB does not provide tax advice. These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any international, federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor. We recommend that you consult a q

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