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 Keeping
It Simple with an IRA Rollover
The average person changes jobs eight times during the course of a 30-year career.1
And many workers leave behind a trail of employer-sponsored retirement plans
scattered among various providers. The result may be a load of unnecessary
paperwork and a logistical headache when it comes to asset allocation and taking
mandatory retirement plan distributions.
Luckily, there is a way to consolidate all that paperwork and still maintain the
tax-deferred status of your retirement savings. It’s called an IRA direct
rollover.2
 Make
It Easy
Rolling your retirement assets into a single IRA means fewer monthly or
quarterly statements, and it may mean less paperwork at tax time. An IRA
rollover can also give you greater investment flexibility and make assets easier
to manage. Whether you are rebalancing your portfolio or designating
beneficiaries, dealing with a single financial institution can simplify the
process and may help reduce fees and expenses. Plus, you can invest with the
institution of your choice and often select from a broader range of investment
options.
Keep It Growing
Over time, tax-deferred retirement savings can grow to an attractive sum. But
many people become tempted to cash out when they change jobs or enter
retirement. Doing so, however, can be costly. Depending on your age and tax
bracket, you could lose up to half of your assets to taxes and early withdrawal
penalties. An IRA rollover allows you to keep assets growing tax deferred until
you retire, at which time you can withdraw funds as needed and pay taxes only on
withdrawals.
Avoid Penalties
A direct trustee-to-trustee transfer can help eliminate any withholding, taxes,
and penalties during the actual rollover process. If a trustee-to-trustee
transfer is not possible, ask that a check in the amount of your balance be made
out to your new IRA custodian for deposit into your account. If the check is
issued in your name, a mandatory 20 percent of the account’s value will be
withheld for federal income taxes — even if you plan to deposit the entire sum
in the new IRA before the 60-day deadline. In order to eliminate paying those
taxes, plus additional early withdrawal penalties, you will have to come up with
the 20 percent from other funds and deposit the entire distribution in the new
IRA before the deadline.
Your financial situation can become increasingly complex with age. If you’re
looking for a way to streamline your retirement assets, an IRA rollover may be
right for you.
1) Bureau of Labor Statistics, 2002
2) Distributions from traditional IRAs are taxed as ordinary income and, if
taken prior to reaching age 59½, may be subject to an additional 10 percent
federal income tax penalty.
© 2002
Emerald Publications
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