What is a rollover ira vs traditional ira – What are rollover iras vs traditional ira accounts? 1-800-566-1002. What are the best type of rollover ira vs a traditional ira for retirement and learn how you can avoid the most common mistakes that individuals have made when looking to incorporate a roll over ira versus a traditional ira.
Rollover IRA Definition – 4 Important Points You Need to Know

The rollover IRA definition, and all of the applicable rules, really depends on what “type” of conversion you plan to make. Let’s look at four of the important points, below.

Traditional to Roth

When converting from a traditional to a Roth account, taxes will be accessed on the total value of the account, unless all or part of your contributions was already taxed. You see, Roth contributions are taxed as regular income for the year. Most contributions to traditional accounts are either made with pre-tax funds or else they are tax deductible.

Converting to a Roth is sometimes desirable, because distributions are not taxed. So, during your post-retirement days, you can take whatever salary you like, without being taxed.

Under the rollover IRA definition for a traditional account converted to a Roth, you must earn less than $100,000 per year, but that restriction will be lifted in 2010, as long as congress doesn’t change the applicable law, before that time.

403 b, 457 and 401 k Plans

403Bs are annuity plans that are available to ministers, teachers and some non-profit groups. 457 plans are offered to state and local government employees. 401ks are employer sponsored plans and usually the employers match the employees’ contributions.

Any of these funds can be converted to a Roth, but once again, taxes will be incurred on any funds that were previously pre-tax or tax deferred. They can be converted to a traditional or a self-directed IRA, without incurring a tax-penalty. But, under the rollover IRA definition, you could only convert a fund ONCE during a 12 month period.

Transfers or “Direct Rollovers”

Terminology can be confusing, particularly when institutions use terms interchangeably. Transfers are not subject to the rules that regard roll-overs. They aren’t even reported to the IRS. Some companies refer to a transfer as a “direct roll-over”, but here’s what either term actually means.

When funds are transferred directly from one custodian to another, the transaction is not reported to the IRS. There are no limitations concerning how many times this type of transaction can be conducted. (Of course, custodians may charge fees that could affect the outcome of these transactions…read the fine print)

Under the “specific” rollover IRA definition, all of the assets within the account must be liquidated, so that a check can be made payable to you. You have 60 days to deposit that check into another IRS approved plan. Otherwise, taxes may be assessed.

Something Else to Think About

Have you thought about the self-directed approach or investing the fund in something other than stocks or bonds? Most people don’t, but those that do earn a higher rate of return on their investments.

It is not unusual to see accounts earning 30% or more per year by investing in real estate and either flipping the properties for a profit or collecting rental income within the account. As with everything else, there are rules that apply, but under the rollover IRA definition, investments like these are allowed. It might be worth your while to learn more, today.

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