IRA Rollover FAQs

What is an IRA Rollover?

The IRA rollover is a tax advantaged account designed to receive retirement funds rolled over from another retirement plan such as a 401k, Profit Sharing and Money Purchase Keogh Plans, 403b, 457, ESOP, Thrift Savings Plans etc. The IRA Rollover allows funds to be transferred tax free and penalty free from other retirement plans and allows retirement funds already set aside to continue to grow tax deferred until retirement.

When is an IRA Rollover beneficial?

When changing employers the employee must decide what to do with funds in the old employer's retirement plan. One option is to leave the assets invested with the old employer, but most people prefer to take their retirement plan assets with them. The IRA rollover is usually the best place to deposit those assets because when done properly it avoids the automatic 20% tax withholding on retirement plan distributions (IRS also imposes a 10% penalty on the distribution if done before age 59 1/2).

There is no limit on the amount that can rolled over into an IRA and when done properly there is no tax liability. Having one IRA rollover holding all retirement assets is simpler and easier to manage than having several retirement plans after a few job changes. Another benefit is gaining more investment choices because some employer retirement plans such as a 401k have limited investment options. By comparison an IRA rollover offered by BCM Advisors features a choice of thousands of different mutual funds and the guidance of a professional advisor who can tailor a blend of funds to suit your investment style and needs.

What happens if I take my retirement funds in cash when I leave my old employer?

Consider the case of a 50 year old with retirement assets of $100,000 who requests that his old employer terminate his plan and send him a check. A check for $80000 will be sent because the employer is required by law to withhold 20% for future income taxes. Even worse, $100,000 will be added to his W-2 income so the $20,000 withheld probably wont be enough taxes. Finally a 10% penalty ($10,000) for a "premature distribution" (before age 59 1/2) is levied next April 15.

How do I avoid that tax catastrophe?

The simplest way is to establish an IRA rollover and then ask the employer to send you a check for $100,000 via a "trustee to trustee" transfer. For example the check would be payable to the custodian FBO (for benefit of) your name. An IRA rollover done in this manner would avoid penalties and taxes.

I already took my retirement funds in cash. Is there any way to get the 20% withholding back and avoid the 10% penalty?

Yes, but it's complicated and 60 days after receipt of funds it's too late to do anything. A BCM advisor can outline the steps if you qualify.

Why not simply transfer my old retirement plan to my new employer's retirement plan?

You can, but you surrender some of your financial privacy and compared to an IRA rollover you might feel restricted by the rules and policies of the employer's 401k plan.

An IRA rollover is your own personal retirement account which you control and you are not affected by the financial health of your employer. Furthermore at BCM Advisors a financial advisor will work with you to structure a portfolio that suits your investment style and preferences and we offer a choice of thousands of mutual funds to maximize investment flexibility.

IRA Rollover Advantages

There are a number of advantages of rolling over an ex-employers retirement plan into an IRA. Learn more about the advantages of an
IRA Rollover. 

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Disclosures:

*  The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

* Information contained in these sections merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.