Q & A Rolling Over an IRA

Q: When can I roll over an IRA?
A: When an IRA can be rolled over depends on the type of IRA. If it Is a personal IRA, it can be rolled over when you make a withdrawal. If the IRA is part of an employer-sponsored qualified plan, then it can be rolled over after a lump-sum payout.

Q: Why would I want to roll over an IRA?
A: A personal IRA usually is rolled over because the account holder wants to change how the IRA is invested. A company plan IRA is generally rolled over to postpone income tax on the account, and/or to add it to another IRA account.

Q: How do I roll over a personal IRA?
A: A personal IRA can be rolled over vi a direct trustee-to-trustee transfer i.e., tell the bank or investment firm that has the account to transfer to the credit union. A taxpayer can make as many direct trustee-to-trustee transfers as he or she likes within a year. The other option is to withdraw the IRA funds directly, and then deposit the withdrawn amount into a new or existing IRA within 60 days. You can use the funds for that 60-day period, but note that the IRS strictly enforces the 60-day period. This type of roll over can be done only once a year. But if you have other IRAs, these other accounts can be rolled over the same way during the year.

Q: How do I roll over a distribution from a company plan?
A: If you are eligible for a lump-sum distribution from your company plan, there are two ways you can roll the amount over. They are basically the same as the personal IRA methods. One way is to request that your company's trustee directly transfer the account to an IRA account at your credit union. The second method is to have the funds transferred directly to you. You then have 60 days to effectuate the rollover. If you choose to have the funds transferred to you personally, the company trustee is required to withhold 20% of the distribution for federal taxes. If the 20% is not replaced, then that amount is subject to tax and possible penalties.

Q: Can I roll over a company plan distribution onto a personal IRA?
A: Yes, it can be done, but it is not always the preferred choice. An IRA rollover from a company plan can qualify in the future as a rollover into another company plan, but a personal IRA does not qualify for this treatment. If you commingle the IRAs, then you cannot rollover any part of the commingled IRA into a new company plan. The advantage of rolling an IRA account back into a qualified company plan is that the amount can then be eligible for lump-sum distribution. Or, if you like the investment options given in the company plan, you may want to invest a greater portion of your funds in that plan.

Q: Can I roll over funds to another family member?
A: If a husband or wife is the designated beneficiary of the other's IRA, the spouse who inherits the IRA can roll it over into a new IRA. This treatment is not available to other family members. This spousal rollover is a valuable tax planning technique, since it can be used to change future payout schedules.