What Are the Benefits of a Rollover / Direct Rollover / Transfer IRA?
A rollover / direct rollover / transfer IRA is designed to help you manage your retirement funds by allowing the movement of assets from one tax-deferred retirement plan into another.
For example, if you receive a distribution from your employer's retirement plan and roll it over (rollover) or directly roll it over (direct rollover) into an IRA, you benefit in two very significant ways:
A. You avoid immediate taxation and possible penalties, and
B. Earnings on your retirement dollars grow tax deferred until withdrawn.
What Distributions Can I Roll Over or Directly Roll Over or Transfer Into an IRA?
Funds received from an IRA can be rolled over or transferred to an IRA. Funds received from certain distributions from a qualified plan (QP) or a tax-sheltered annuity (TSA) can be rolled over or directly rolled over into an IRA.
How Do I Move Funds From one IRA to another?
There are two ways to move an IRA from one financial organization into another: rollover and transfer.
A rollover takes place when the IRA funds are paid directly to you and redeposited (rolled over) into an IRA within 60 calendar days of receipt. The 60-day period begins the day after you receive the payment.
A rollover transaction from an IRA may not occur more than once during a 12-month period. This 12-month rule applies to each separate IRA you own and is determined from the date the IRA funds are received. The 12-month limitation does not apply if the funds are transferred directly from one financial organization into another or if they are rolled over or directly rolled over from a QP or TSA into an IRA.
A transfer occurs when the funds are moved directly from the distributing IRA into another without you having direct control or custody of the funds.
There are no time or frequency limits on the number of transfers permitted.
Can I Redeposit a Distribution Into the Same IRA?
Yes. The rollover can occur out of and in to the same IRA.
ROLLOVER OR DIRECT ROLLOVER FROM A QP OR TSA
What Plans Qualify to Be Rolled Over or Directly Rolled Over Into an IRA?
A. Pension Plan
B. Profit Sharing Plan (including a 401(k) salary reduction arrangement)
C. Stock Bonus Plan
D. HR-10 / Keogh Plan
E. 403(b) Tax-Sheltered Annuity
F. Federal Thrift Savings Plan - IRC 7701(j)
Note: only funds received from a QP - as governed by Internal Revenue Code Section 401(a) (A, B, C, D, or F above) - or a 403(b) TSA are eligible to be rolled over or directly rolled over to an IRA.
What Is a Rollover / Conduit IRA?
A rollover / conduit IRA is an IRA established with funds that are distributed from a QP or TSA.
QP or TSA distributions paid directly to you are subject to a mandatory 20 percent federal income tax withholding at the time of distribution.
Regardless of the source of the funds, the deposit to a rollover IRA must take place within 60 calendar days of the date that you receive the funds.
What Is a Direct Rollover?
A direct rollover is a QP or TSA distribution that is sent directly from the plan administrator (employer) to an IRA. Such distributions are not subject to the mandatory 20 percent federal income tax withholding.
When Would I Receive My Funds?
A. Separation From Service - including retirement
B. Employee's Disability
C. Employee's Death - only a surviving spouse beneficiary can roll funds over into an IRA
D. Attainment of Normal Retirement Age - no earlier than age 59 1/2
E. Plan Termination
What Portion of My QP or TSA Distribution Can I Roll Over or Directly Roll Over Into an IRA?
Only the eligible rollover distribution - a distribution of any portion of the balance to the credit of a plan participant in a QP or TSA - can be rolled over or directly rolled over. The amount being deposited cannot include any payments that are:
A. "Part of a series of substantially equal periodic payments" over a single or joint life expectancy of the employee and beneficiary or for a specified period of ten years or more
B. Nondeductible contributions (nontaxable distributions)
C. Required minimum distributions [at age 70 1/2 and older (before 1997) and at age 70 1/2 or retirement, whichever comes later, thereafter]
D. Funds which qualify for the death benefit exclusion before 1997
Must I Roll Over or Directly Roll Over the Entire Distribution?
No. You can deposit all or a part of the taxable portion received. Funds eligible but not deposited are taxed as ordinary income and a 10 percent premature-distribution penalty may be assessed if you are under age 59 1/2.
Should I keep QP or TSA Rollover or Direct Rollover Funds in a Separate (Conduit) IRA?
Maintaining QP or TSA rollover or direct rollover funds in an IRA separate from your regular IRA is required if you intend to move the funds back into another QP or TSA.
Keeping funds in separate accounts may also apply in the case of an IRA-to-IRA rollover if the original IRA was established as a rollover or direct rollover from a QP or TSA.
What if My QP Distribution Contains Stock or Other Property?
Part or all of your QP distribution may be in the form of stock or other property. You could deposit the same property received or sell it and deposit the cash proceeds into an IRA.
Can I Deposit My Rollover or Direct Rollover Distribution Into More Than One IRA?
Yes. More than one IRA can be used to successfully accomplish a rollover or direct rollover of an eligible rollover distribution. Your plan administrator (employer) may restrict your direct rollover to only one IRA.
Can I Revoke My Rollover or Direct Rollover Contribution to an IRA?
No. The rollover deposit is irrevocable.
Do I Pay Taxes on the Earnings of My Rollover or Direct Rollover IRA?
All earnings on your rollover or direct rollover IRA contributions remain tax deferred until you make withdrawals from the IRA.
Can a Rollover or Direct Rollover Occur After Age 70 1/2?
Yes. There is no age restriction on a rollover or direct rollover deposit. However, required minimum distributions at age 70 1/2 or retirement (whichever comes later) for qualified plans and at age 70 1/2 for IRAs are not eligible to be rolled over or directly rolled over into an IRA.
What Happens to My Account in the Event of My Death?
Your named beneficiary (ies) will receive the entire proceeds of the account. The manner in which your beneficiary (ies) receives the funds is determined by the election made by your beneficiary (ies) within the guidelines of the law.
Does a Rollover or Direct Rollover Deposit Affect My Regular or Spousal IRA Deposits?
No. Rollover or direct rollover deposits do not affect your eligibility to fund a regular or spousal IRA.
How Do I Open a Rollover or Direct Rollover IRA?
Simply see any of our IRA representatives. We will explain the nature of these accounts in more detail and help you complete the simple forms necessary to establish your rollover or direct rollover IRA.
ROLLOVER OR TRANSFER FROM A SIMPLE RETIREMENT ACCOUNT TO AN IRA
What is a Simple Retirement Account?
A Simple Retirement Account is an IRA established by an employee in order to participate in his / her employer's SIMPLE (Savings Incentive Match Plan for Employees of Small Employers). The Simple Retirement Accounts can accept contributions from the employer.
Can a Simple Retirement Account Be Rolled Over or Transferred to an IRA?
Yes. However, for the two-year period following an employee's initial participation in a SIMPLE, rollovers or transfers can only be made to another Simple Retirement Account. After the two-year period, rollovers or transfers can be made to both Simple Retirement Accounts and regular IRAs.
Is There a Penalty if a Simple Retirement Account Is Rolled Over or Transferred Within the Initial Two Years of Participation?
Yes. The owner would owe a 25 percent premature-withdrawal penalty.
The above information is intended to provide general information concerning rollover, direct rollover, and transfer deposits. It is not intended to be a detailed explanation of the regulations covering these account or how they may apply to your individual circumstances. For specific information, you are encouraged to consult your tax or legal adviser.
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Since First Federal Savings Bank of Virginia is a small bank, dedicated to serving the needs of our local communities, deposit accounts and loan applications are accepted only from residents of the communities served by our branch offices and their surroundings.
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