Roth IRA Rollover Guidelines

2007-03-08 10:33:40

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An IRA also known as an individual retirement account is a retirement savings scheme that can be set up by anyone who is employed, and earning a regular taxable income.

If you decide to leave the company or you get terminated, you can receive the money that is contained in your IRA as a lump sum amount. This process is called an IRA rollover.

You can also choose to leave your IRA with your former company, and claim it when you reach the retirement age; however, there is no guarantee that the company will still be around at the time of your retirement. Therefore, it is strongly recommended that you immediately convert your funds into a traditional IRA instead.

Another type of IRA that provides you with better benefits is a Roth IRA. A Roth IRA can only be created if you first open a traditional IRA, afterwhich it can be converted into a Roth IRA.

There are a number of IRA rollover rules that need to be followed in order for you to take advantage of a Roth IRA rollover:

You can withdraw or borrow against your Roth IRA rollover contributions at any time with no penalties, and without even returning the funds; however, if the amount on your IRA account becomes the equivalent of your interest/earnings, and you still decide to make withdrawals, you will be subject to taxes and a penalty.

Withdrawal penalties may be waived if: the reason for your withdrawal is due to your death as an IRA owner, or that you become disabled. Penalties may also be waived if you have made a series of large payments over a certain period, or use the funds to pay for college education of yourself or eligible family members. If you decide to withdraw funds up to $10,000, and use it to make a first-time home purchase, your penalties can also be waived. Finally, any withdrawals that are a result of medical insurance premium payments after you have received compensation for unemployment can also cause your withdrawal penalty to be waived.

Deposits to a rollover Roth can be made through several methods, and only up to a maximum allowable amount per year. The funds can be deposited directly from your bank account, or done through a conversion for an IRA rollover to a Roth IRA. The procedure can be done online, or through banks, brokers or mutual fund firms (processing and set up fees apply).

You are allowed to make contributions to a rollover Roth even if your company enrolls you into an employee retirement scheme.

You can make partial contributions to your Roth IRA rollover. This could be an advantage for you especially if converting the entire amount of your traditional IRA can result in higher taxes.

There may be other IRA rollover rules that apply, so it is recommended that you speak with your Roth IRA provider to obtain further information.


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