What is a rollover?

What is a rollover?

A rollover is the process of moving your retirement savings from your retirement plan at work (401(k), profit-sharing plan, etc.) into an Individual Retirement Account (IRA). Rolling over to an IRA allows you to keep your savings tax-deferred and typically gives you a broader choice of investments.


Do I need to report a rollover on my tax return?

Yes. You will receive two tax forms — an IRS Form 1099R reporting that you took a distribution from your former employer's plan and an IRS Form 5498 reporting that you made a rollover contribution to your IRA. Even if no portion of your rollover is taxable, you must report it on your tax return.



Will I owe taxes on my rollover?

Typically no, if you roll over your money directly from your company plan into an IRA. This means that your company plan makes the check payable to your IRA's custodian and that check is deposited to your IRA.





Can I take the money out of my plan and then decide what to do?
You can, but it's a good idea to consider the impacts of each option to make a decision before taking any money out of the plan.

When you take money out of the plan in a check payable directly to you, 20% of the original balance will be withheld for federal income taxes before you get the check, so you won't have the full amount to roll over.
You can still deposit the money into an IRA or your new company plan, but you must do this within 60 days.
If you don't deposit the withheld amount to the new IRA or company plan, it will be added to your ordinary income (which may be taxable) and may also be subject to IRS penalties.
The 20% that is withheld for taxes is considered normal income tax withholding — just like what happens with your paychecks. If you overpay taxes for the year, you may get some of it back in a refund when you file your tax return.


Can I combine my rollover and annual contributions in one IRA?

Yes, you can combine rollovers and contributions in the same account. However, you are required to keep Traditional IRA and Roth IRA money in separate accounts.