You might think that the terms IRA
Rollover and IRA Transfer mean the same thing. While they
are similar to each other, they are also different.
IRA Rollover is you taking up responsibility
of your retirement savings account for upto 60 days before
reinvesting it into a new retirement plan
IRA Transfer is the movement of your
retirement savings and assets from one custodian to another
without taking responsibilty of the funds.
Peter is an accountant and has saved
up $40,000 in a traditional 401k retirement savings plan.
Peter takes this $40,000, makes the funds payable to himself
and wishes to open a new IRA Rollover account with a new
401k broker. Till he finds this broker, he puts all this
money into his checkings account with his local bank.
Upon finding the new broker, Peter writes a check from
his checking account and opens up a new IRA Rollover Account.
Adam is a computer engineer and has
saved up $25000 in his traditional 401k retirement savings
plan with his old employer. Upon leaving the company,
Adam moves this $25000 amount and wishes to move it to
an IRA account and manage this account all by himself.
Adam therefore instructs his old 401k administrator to
move these funds directly to his new broker account. During
this transaction, Adam does NOT have access to his money.
After 3 weeks, the $25000 move from Adam's traditional
401k plan into his new IRA account. This is what is known
as a 401k Trustee to Trustee Transfer.
All retirement savings from the old
IRA account are withdrawn by the retiree and the IRA Custodian
writes a check to the retiree. The retiree then stores
this money in his checking account for a maximum of 60
days. Within these 60 days, the retiree must rollover
these savings to a new IRA account with a new broker such
as Charles Schwab. This type of a rollover is limited
to once every 12 months.
The retiree can rollover all the
stock options, employment benefits, profit-sharing and
annuity payments as well as qualified pension benefits
from the Employee Sponsored 401k Plan into an IRA (Individual
Retirement Account). This is accomplished by rolling over
these funds to a personal checking account, and directly
transferring the funds to an IRA (with a new broker) within
60 days.
Retirement savings can be rolled
over from one qualified retirement or deferred compensation
plan to another via a Conduit IRA. How does a Conduit
IRA work?
-> Your retirement savings are
moved to an IRA holding account
-> A few weeks later, these funds can be moved to your
new employer's qualified retirement or deferred compensation
plan.
-> Only the funds from the OLD retirement account and
any interest earnings on it can be rolled over
-> You will have to wait until your retirement savings
are FULLY moved to the new IRA account before you can
make any more contributions
