DayCents

IRA Rollover

A rollover moves retirement money from one account to another — most often from an old employer's 401(k) into an IRA — without triggering taxes or penalties. It keeps your savings growing tax-advantaged while giving you more investment choices and lower fees.

Always ask for a direct rollover, where the money moves account to account and never touches you. An indirect rollover — a cheque made out to you — triggers a mandatory 20% withholding from a 401(k), and you then have 60 days to redeposit the full original amount including the withheld portion, funding that gap from your own pocket until the tax return returns it. Miss the deadline and the shortfall is a taxable distribution, with a 10% penalty if you are under 59½. IRA-to-IRA indirect rollovers are also limited to one in any twelve months. And rolling a 401(k) into an IRA can sabotage a future backdoor Roth by adding to the pro-rata pot.