The Lowdown On Rollover IRA Contributions

If an Individual Retirement Account is used to hold an individual’s earnings which were distributed from any of his other retirement plan or another type of IRA, then it is considered as a rollover IRA. Rollover IRA contributions is an investment option for those individuals on the verge of leaving their current employment and who are active participants of 401(k), 403(b) or any qualified employee retirement plans.

Generally distributions from company sponsored plans are eligible distribution which can be rolled over to a separate IRA. The exceptions to this rule are;

• when a distribution is a part of a series of equal periodic payments

• any required minimum distributions

• distributions made as a result of the hardship of the employee and certain returns of elective 401(k) contributions

• corrective distributions

• loans treated as distributions

There are two types of Rollover IRA contributions;

1. Direct Rollover-which involves the rolling over of funds from an employer sponsored retirement plan.

2. IRA to IRA rollover-where an individual (within 60 days after receipt of the distributed assets) can roll it to another IRA.

Rollover is differentiated from an actual transfer between two IRAs. In transfer there is no actual distribution but only the movement of funds through the IRA custodian. In rollover the owner receives his assets from the distribution of his retirement plan and the deposits made to another IRA is considered a rollover.

For instance you received a pay-out from your retirement plan, and you put up another IRA to hold the amount you received from the distribution. The IRA that you set up is considered as a rollover. Rollovers are similar to traditional IRAs where you would still enjoy some sort of a tax shelter for these deposits as the IRA would help your money grow, free from taxes.

This amount could also be rolled over to combine with the regular contributions of an employer sponsored retirement plan, provided that the rollover IRA did not received contributions from any plan which is not employer sponsored.

Unlike traditional IRA, there is no maximum allowable limit for Rollover IRA contributions. You can roll any amount of money to a rollover IRA. The rollover of these amounts is considered as a Rollover IRA contributions.

IRA rollover contribution rules provide that contributions to roll-over IRA are not tax-deductible but those amount distributed from a retirement plan that are properly rolled over to another traditional IRA are tax-free until they are withdrawn from the IRA.

And once funds are rolled over to an IRA, then specific IRA rules would apply depending on what type of account was created. For example, an individual would rollover his retirement funds into a Roth IRA account, then Roth IRA tax deduction rules would apply.

However in IRA to IRA rollovers the assets that were distributed must be re-deposited to an IRA within 60 days. But the Internal Revenue Service or IRS can waive the 60-day requirement in the event of major disasters, calamity or circumstances beyond your reasonable control.

Some find IRA to IRA rollovers easier since they don’t have to prove that rollover IRA contributions came from eligible retirement plans; however indirect rollover, which involves re-depositing the distributions from one IRA to a new IRA can only be done once in every 12 months.

Ira Contribution