A rollover occurs when funds from a Qualified Retirement Plan, IRA or Coverdell Education Savings Account (CESA) are received by the plan participant and moved into another IRA or CESA within 60 calendar days. The source of the rollover deposit must be an IRA, eligible Qualified Retirement Plan or CESA. Rollovers are relatively uncomplicated to complete as long as a few guidelines are kept in mind.
Only one rollover
per 12-month period is allowed. This 12-month rule
applies to each separate IRA or CESA plan a holder owns.
When an individual
takes money from an IRA or CESA and intends to roll the
funds, he/she is taking a distribution from the
IRA or CESA. The rollover must be completed within 60 days
or the money may be subject to taxes and applicable
The 60 day time
frame begins on the day after the IRA or CESA holder receives
the rollover distribution.
distributions for IRA holders age 70 ½ or
older must be withdrawn prior to a rollover distribution.
Rollovers are reported
to the IRS on forms 1099-R and 5498 by the financial
Rollovers can be
from a CESA to a CESA, an IRA to an IRA, or a rollover can be from
a Qualified Retirement Plan (QRP) into an IRA. Qualified
Retirement Plans include Pension plans, Profit sharing
plans, Stock bonus plans, ESOPs, Keogh plans, and
Federal thrift savings plans. If a rollover is
from an IRA into an IRA, it is subject to the 60-day
time frame and one rollover per 12-month time period
for each IRA plan.
If a rollover
is from a QRP into an IRA then there is a mandatory
federal income tax withholding:
The IRS requires that the original trustee
withhold 20% of the total distribution as
a prepayment of income tax. If you are under
age 59½ and to avoid a 10% IRS penalty,
you must rollover 100% of the distribution.
In addition, the individual must deposit
20% out of pocket and request a refund when
filing taxes. Then the individual has 60
days to reinvest the distribution into an
eligible retirement plan or the distribution
becomes taxable income.
In order to avoid the mandatory 20% withholding,
the funds may be directly rolled over.
Please see direct rollovers for more information.
If you are interested in rolling
over Qualified Retirement Plan funds, IRA funds or CESA funds
into your First Bank IRA or CESA, please see a Financial Service
Representative at your local First Bank Branch.