What is a ROLLOVER?
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A ROLLOVER
generally occurs when a tax-free distribution of cash and/or assets
move from one qualified retirement to another qualified retirement
account. When referring to an IRA, there are two types of rollovers,
indirect and direct. Rollovers can sometimes be confused with
transfers which is a separate issue.
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Ineligible
Rollovers Distributions
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ALL
rollovers must be deposited in a retirement account in the same form
as distributed. Amounts not rolled over are generally considered
taxable income. Tax free withdrawals can be made for all or part of
the assets from an IRA if they are reinvested within 60 days of
receipt into the same or another IRA. The distribution can not
represent any portion of the Required Minimum Distribution payable for
the year or come from an IRA that has already had a distribution made
and rolled over within the last 12 months.
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| The table below
indicates the difference between taking distributions from a Qualified
Plan via an Indirect versus a Direct rollover: |
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Transaction Type |
Indirect Rollover
(You Receive
Money direct from Employer) |
Direct Rollover
(Money is
Rolled Over Directly to IRA/Custodian) |
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Distribution |
Any part not rolled
over is considered taxable income in the year distributed |
The rollover funds
are not considered income until later distributed from the IRA and
not rolled over |
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Withholding |
The employer must
withhold 20% of the taxable part |
None |
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Distribution to
client who is under age 59 1/2 |
A 10% penalty may
be applicable to any part of the distribution that is not rolled
over |
None |
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Types of Rollovers
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Direct Rollover -
From a Qualified Plan
A distribution and rollover are handled between two institutions
(employer and receiving custodian). You instruct to rollover assets,
cash and/or securities directly into the Traditional IRA.
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IRA Acquired
through Divorce
If an IRA was
acquired from a divorce it is NOT considered a Rollover transaction.
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Inherited IRA
If a surviving
beneficiary inherits a traditional IRA from his/her spouse, then
generally a rollover can take place into a Traditional IRA established
for them. The surviving spouse can also elect the "Treat Your Own"
option if he/she is the sole beneficiary on the account.
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If a Traditional
IRA is inherited from someone other than a spouse, a rollover CANNOT
occur into the surviving beneficiary's account. The applicable
distribution rules must be followed.
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From a "Qualified
Plan":
If you receive an eligible
rollover distribution from your (deceased spouse's) employer's
qualified pension, annuity plan or tax-sheltered annuity plan (403(b)
plan), a rollover of all or part of the distribution can be made into
a Traditional IRA. You may rollover Qualified employer plan
distributions as often as they are eligible. Therefore there are NO
limitations regarding the number of times a direct rollover occurs.
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Rollover of IRA
Assets Used for Margin Calls:
You may request a distribution from your IRA to meet margin
calls. The IRS does not prohibit these distributions, if you do not
comply with rollover regulations, you could incur tax liabilities and
potential penalties.
In-kind distributions of securities to a retail account may not be
sufficient to cove the margin call. Additional deposits may be
necessary to satisfy the clients margin requirement should market
conditions deteriorate.
Securities must be returned to the IRA within 60 days, in the same
form, in order to comply with IRS rollover regulations. Repositioning
of assets held outside an IRA is limited since assets that are
re-deposited into the IRA must be the same positions that were
distributed, i.e. if 100 shares of IBM are distributed from the IRA,
only shares of IBM (100 shares or less) could be deposited back into
the IRA as a rollover contribution.
The deposit of assets back into an IRA is not automatic. The request
to Rollover must be submitted in writing with the appropriate forms
and then may take a few days to complete the transaction.
The Margin Department will need to approve before assets can be
withdrawn from the retail account for redeposit into the IRA as a
rollover. Market conditions may prohibit the release of assets from
the margin account within the 60-day rollover period.
Waiting period between rollovers - You may take a distribution from an
IRA or SEP/IRA and make a rollover contribution (of all or part of the
amount received) to another IRA only once every 12 months.
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Possible IRS
Extensions:
The IRS is only given authority to extend the 60-day rollover
period where failure to comply is due to casualty, disaster or events
beyond the reasonable control of the individual.
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| *ANY
"Exception Requests" MUST be directed to the IRS ONLY. |
