In Plain Sight Minisserie

Roll on Over!

Some of the IRA rollover rules are changing in 2010. Some of us feel the change is for the better. Here’s a little info about IRA rollovers today and in the future.

IRA rollover rules are relatively simple. Transfers and IRA rollovers are two ways of moving sheltered assets between financial institutions.

If you have an account with one company and you decide to move the funds to another, because you changed jobs, want to try self-directing or for any other reason, the new institution will send a transfer request to your current custodian. Your current custodian sends a check directly to the new account provider.

The check is made payable to the new custodian “for the benefit of your retirement account”. It is unnecessary to report a transfer to the IRS.

IRA rollovers are sometimes referred to as 60 day roll-overs. In this situation, the funds are disbursed directly to you, the account holder. You have 60 days to deposit the funds into another qualified account in order to prevent the loss of the fund’s tax-sheltered status.

IRA rollovers can only occur once every 12 months, so when you make a decision to change institutions or custodians, be sure to choose wisely. The fees charged and the services offered vary greatly. If you are dissatisfied with the new account provider, you’ll be stuck with them for a year.

Following the IRA rollover rules, moving funds in this way is reported to the IRS by the distributing (your current) institution. Once the funds are deposited into another qualified account, you will be sent [http://ftp.irs.gov/pub/irs-pdf/f5498.pdf] (Form 5498) to attach to your tax forms for the year. This form nullifies any tax consequence that would otherwise be incurred.

There are some different IRA rollover rules for converting from a traditional to a Roth account. If the traditional account was funded with pre-tax dollars and had a tax deferred status, non-deductible assets will be taxed as regular income for that year.

The advantage is that disbursements are not taxed. People choose traditional accounts because they assume that their tax bracket will be lower when they retire. And, it very well could be, but if you want to avoid paying taxes after you retire, then a Roth may be the right choice.

Currently, taxpayers can only make IRA rollovers from a traditional to a Roth if their income is less than $100,000.00 per year. But, that limitation will be temporarily suspended in 2010 and 2011.

Some of us are happy, because once your income exceeds a certain level, you can no longer contribute to a Roth and you can’t convert traditional accounts to the Roth type. But, at least for a couple of years, we can convert and shelter some of our returns from additional taxes.

If you’re interested in some less traditional investment types, like real estate, the best time to make them is right after completing IRA rollovers or transfers. That’s when you typically have the largest “cash” balance.

There are some other IRA rollover rules that may apply to accounts with money market funds or CDs. Additional fees may be charged by your financial institution for converting these funds early. Check with you account provider for specific information.