A rollover, in regard to individual retirement accounts As a general rule, 401(k) plans rollover into an IRA when the employee reaches retirement age. However, the employee, if changing employment, can leave the 401(k) with the former employer to continue to grow. A 401(k) rollover, depending on which option an employee chooses, has its advantages and disadvantages. The available options include:
Making a 401(k) rollover as a full distribution in cash. This incurs Leaving the 401(k) with the former employer. While not a 401(k) rollover, this option allows the retirement plan to be maintained, it does not give the employee control over the fund and it lacks diversity to grow;
Making a 401(k) rollover into another employer’s retirement plan. This option keeps the funds with the employee but may affect how the funds are invested and how they grow;
or, Making a 401(k) rollover into an IRA. This presents new options to the employee in how the account is managed, invested, and affected by taxes. This is the option that is most widely used in the United States.
An IRA rollover is the act of transferring the funds in an IRA to either another IRA or into a 457 planThere are strict guidelines set by the IRS which include:
The 60 Day Rule: Any funds that have been distributed for the purpose of an IRA rollover must be transferred within 60 days of receiving the funds. If the funds have not been transferred within that time, an extension can be applied for but this treats the funds as income and are then subject to
The One Year Rule: An IRA rollover can only occur once every 365 days. This means that the funds in IRA-1, for instance, can be transferred into IRA-2 once in a year.
The Same Property Rule: The funds of an IRA rollover that are transferred must be the same funds that have been distributed. The account holder can take funds out and replace them during the 60 day period, but those funds will be treated as regular income to then be taxed and penalized.