Undertanding IRA Rollovers
The term IRA Rollover refers to several different movements of funds between U.S. retirement accounts. Below you will find a brief description of each rollover type available.
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.
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Funds withdrawn from an IRA and re-deposited into an IRA within 60 days may be eligible for treatment as a 60 day rollover contribution.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 a 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 tax filing, but do include the 1099-R.
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Funds received or withdrawn from an employer-sponsored retirement plan and deposited directly into an IRA.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 tax filing.
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.
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 The rule applies to funds withdrawn from each separate IRA.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 IRA 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 are taxable. The deposit into another IRA is treated as a regular contribution. (See IRA Publication 590 for limited exceptions to the rule.)
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 qualified tax advisor or refer to the U.S. Internal Revenue Service.