You don’t have to worry too much about IRA rollover penalties. Here’s a brief look at the charges that you may incur and how you can avoid them.
Assuming that you are going to look for a new account custodian, the IRS will only assess a penalty, if you fail to do so within the next 60 days. Now, if you have decided to retire or at least take a few years off, you will have to report the entire roll-over amount on your year-end taxes and that amount will be taxed along with any other earnings that you had for this year.
You may incur IRA rollover penalties in other ways. If your retirement fund was invested in certificates of deposit of CDs, the bank is likely to charge an early withdrawal penalty. If your custodian is a brokerage that charges per-transaction fees, your account may be charged for selling each of your holdings.
There are many hidden fees and you have to be really careful, right now, if you want to protect the balance in your account. Sometimes a transfer is best, because some custodians do not charge per-transaction fees.
With a transfer, there are no IRA rollover penalties, because the transaction is not reported to the IRS. You can make numerous transfers in the space of a year’s time, but only one roll-over, without damaging the tax-sheltered nature of the account and incurring taxes.
So, if, for example, you have holdings in the stock market, your custodial company might charge a fee for liquidating or selling off those stocks. A roll over requires the liquidation of all holdings, but a transfer does not, necessarily. It depends on the types of investments that are held within the account.
All of this may seem a little complicated, but it is worth your while to take note of all of these considerations.
Suppose you wanted to avoid paying the per-transaction fees that your custodian currently charges for liquidating assets, but you were also interested in changing your investment choices. You could transfer the fund to a custodian that does not charge per-transaction fees. They usually charge a nominal fee for setting up the account.
You would contact the new custodian that you had chosen. They, in turn, would ask for information about your current account and a transfer could be conducted. Hopefully, your current custodian does not charge a high fee for transfers.
In this way, you could avoid IRA rollover penalties, fees for liquidating assets and you could still take advantage of other investment opportunities that your current custodian does not offer. Real estate, for example, is a good choice for a retirement account.
Property values may be falling right now, but only in some areas. Besides, the old axiom to “buy low and sell high” is applicable. Your account may be able to buy properties that will double in value in a short period of time.
You might want to learn a little more about the IRA rollover penalties, but you should definitely learn a little more about real estate. It’s just smart!