IRA (Individual Retirement Account) Rollover v/s IRA Transfers - IRA Rollover Rules
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.
IRA Rollover Example
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.
IRA Transfer Example
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.
Types of IRA Rollovers
1) From One IRA to Another
All retirement savings from the old IRA account are withdrawn by the retiree and the IRA Custodian writes a check to the retiree.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.
2) From Employer Sponsored 401k Plan to IRA
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.
3) From One Employer Sponsored Plan to Another
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