Can You Rollover an IRA Without Paying Taxes?

There are two forms of rollover: direct and indirect. When making a direct rollover, your new IRA custodian receives funds directly from your previous retirement plan rather than through you.

Direct rollovers can be complex and lead to unintended results, so how can you execute one successfully? Here are a few suggestions.

Direct rollovers

Direct rollover is the easiest and least tax-withholding way of moving funds between retirement accounts. Your full original balance from an employer-sponsored retirement plan is transferred directly into an IRA, meaning any tax withholding can be avoided and assets continue to grow tax-deferred until withdrawal occurs later on. Another method, indirect rollover, requires more work on your part but results in greater tax efficiency for your assets.

Your former employer should send you a check with the value of your old plan balance minus any withholding taxes or penalties withheld for taxes. You have 60 days to deposit it into a destination account or the distribution becomes taxable and subject to penalties; alternatively, you could make up this difference using money from outside sources instead.

Your new IRA custodian or trustee can facilitate a direct rollover by requesting money directly from your previous IRA custodian or bank through what’s known as trustee-to-trustee transfer, in which a check will be made out directly to them and you’ll deposit it into your new IRA account. Direct rollovers from most retirement plans such as your 401(k), 403(b), defined benefit plan and Thrift Savings Account can all be accomplished this way.

Direct rollover is ideal when your new IRA accepts the type of retirement account from which you’re rolling over money, such as from traditional to Roth or self-directed to managed investment account. You may even use this method for moving money between traditional IRA and Roth accounts or self-directed into managed investment accounts managed by custodians.

Indirect rollovers work similarly to direct ones, except the money is taken directly by you instead of held by an account administrator. This gives you more freedom in spending it during the limited 60-day in-between time period; plus any amount withheld from you might need to be replaced within its due date.

Once your indirect rollover has been completed, the IRS requires you to document it on your tax return via Form 1099-R. Your old IRA or 401(k) plan administrator should send this form out so that it can report values of distributed accounts to them; otherwise you must file an amended return in order to comply with them.

Taxes can be complex and daunting, especially when dealing with indirect and direct IRA rollovers. To prevent mistakes from occurring, always consult with a state-specific H&R Block tax professional for guidance and documentation purposes. Use their locator tool here to locate someone close by.

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

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