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Transcript:
If you’re changing jobs or retiring, it’s important to know the rules regarding moving funds from your employer sponsored retirement plan. The wrong move could cost you in income taxes and early withdrawal penalties. You typically have four options, and you may engage in a combination of these options. You can leave the money in your former employer’s plan, if permitted. You can also cash out the account value, but you should research the tax implications first.

There are two basic ways to move retirement plan assets from one retirement plan to another with no tax consequence. With a direct rollover, your financial institution or plan directly transfers the payment to another plan or IRA; no taxes are withheld, and your account continues to grow tax deferred.

With an indirect rollover, a check is made payable to you. You have 60 days to deposit it into a Rollover IRA – after that the entire amount is considered income, and subject to taxes. You could also face a 10% early withdrawal penalty, depending on your age.

And indirect rollovers are subject to 20% withholding. For example, if you had $10,000 eligible to rollover, your employer would withhold $2000, and you’d get a check for $8,000. The $2000 withheld counts as income taxes paid, but in 60 days you still have to deposit the entire $10,000 in a rollover account – the $8,000 from your employer plus $2000 from your own resources.

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TVS 56 – How to Avoid an IRA Rollover Mistake

retirement planning is an important part of financial security. An Individual retirement account (IRA) can be a great way to save for your future. But as with any financial decision, there are some potential pitfalls that can lead to costly mistakes. One of the most common mistakes is an IRA rollover.

An IRA rollover occurs when funds from one IRA are transferred to another IRA without being taxed. This can happen if you are changing jobs, or if you are consolidating multiple accounts. It can also happen if you are transferring funds from an employer-sponsored retirement plan, such as a 401(k) or 403(b).

The Internal Revenue Service (IRS) requires that all IRA rollovers be completed within 60 days of the distribution date. If this deadline is not met, the IRS considers the rollover to be a taxable event. This means that you will owe taxes on the amount transferred, plus penalties and interest.

Fortunately, the IRS has a special exception for IRA rollovers known as the TVS 56. This exception allows taxpayers to complete an IRA rollover without penalty as long as the rollover is completed within one year of the distribution date.

To take advantage of the TVS 56 exception, you must complete the following steps:

1. Contact the financial institution that holds your IRA and request a transfer of funds.

2. Complete the required forms and documentation.

3. Submit the forms and documentation to the financial institution that holds your IRA.

4. The financial institution will transfer the funds to the new IRA within 60 days.

5. The new IRA must be opened within one year of the distribution date.

By following these steps, you can avoid the costly mistake of an IRA rollover. The TVS 56 exception can be a great way to save on taxes and penalties, and ensure that your retirement savings are protected.