IRA Rollovers

Taking Stock of the Situation With George Shaw

Changing jobs, retiring, or starting your own business are such hectic events in your life. It’s understandable that you might not think about your employee retirement plan assets when you change jobs. The next thing you know, your previous employer automatically sends you a stack of paperwork and you are forced to make yet another decision—what to do with your retirement plan. While electing a cash distribution may seem to be the simplest answer at the time, it is by far the worst decision you could make. What it really means is that you elect to give up nearly half of your retirement savings to the federal government in the form of taxes and penalties.

It happens all the time. But you can easily prevent it and keep all of your retirement assets working hard for you. Just turn to the Rollover IRA experts at PB Investment Services. Because rollovers can involve substantial sums, you should be especially careful about the investment firm you choose to set up your Rollover IRA. That’s why your Paducah Bank investment consultant will review with you all available investments, and then help you assemble a customized, diversified portfolio. We will also help you contact your employer and transfer your money directly into a Rollover IRA.

What is a Rollover?
Rollover means to move money from a retirement plan such as a 401(k) into an IRA. In many ways, IRA rollovers are like other individual retirement accounts. The difference is where the money comes from. Rollover IRAs are funded with money that’s already been invested in a qualified retirement plan like a 401(k), a 403(b), a Keogh, or a governmental 457 plan; or in a traditional or Roth IRA. The rollover may let you move the money without owing any tax.

Making Contributions to a Rollover IRA
The Rollover IRA is usually funded by the eligible distributions from a company-sponsored retirement plan. These distributions can be combined with an existing IRA or into a separate IRA. If you create a separate IRA for your rollover, you can easily move these funds to another employer-sponsored plan in the future. It’s a good idea to keep your rollover IRA separate from any other IRA’s you might have, because once you make contributions to a rollover that are not from a company-sponsored plan, you lose the right to move this rollover to a company-sponsored plan.

Distributions from a Rollover IRA
The distribution rules for a rollover IRA are the same as the rules for a traditional IRA. Contributions and earnings are taxed when withdrawn after age 591/2. Withdrawals before age 591/2 are taxable and subject to a 10% penalty with certain exceptions. Withdrawals must begin by the year after you reach 701/2 to avoid penalties.

Direct Rollover
Your employer can directly rollover your retirement plan payout into a Rollover IRA and you will avoid the 20% IRS withholding tax.

Payout by Check
You can avoid the 20% IRS withholding tax on a payout by check from your employer if you deposit the check plus 20% into a Rollover IRA within 60 days.

Before making any decision about your pension distributions, be sure to discuss your strategy with your financial planner or accountant.
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