What is a rollover?

A rollover is simply moving retirement funds (often called "taking a lump sum distribution") from one tax-deferred retirement plan into another tax-deferred retirement plan (often called an "eligible retirement plan"). Whether you roll your lump sum distribution into an IRA or to a new employer's plan, continued tax deferral is the most important benefit. Because you likely did not pay tax on the money in the plan, you can only continue to defer taxes if your assets stay in an eligible retirement plan.

Do I have to rollover when withdrawing from a retirement account?

When you take a lump sum distribution from a retirement plan, you can:

• Roll the money into an Individual Retirement Account (IRA).
• Roll the money into a new employer's qualified plan, if you are leaving your employer and your new employer is willing to accept the funds.
• Take the money in cash.

If you prematurely take the distribution in cash, you run the risk of jeopardizing the quality of your future retirement. It may look like a lot of money now, but your nest egg may have to be a source of income for 20 or 30 years, or more. So, if you spend even a little of your lump sum prematurely -- even to pay down your debts -- you may have a smaller nest egg and less income during retirement. Most importantly, keep in mind that you will have to pay income taxes on any money you withdraw now. In addition, you may be subject to an early withdrawal penalty tax of 10%, unless you meet age exemptions.

How much can I contribute when making a rollover from one retirement plan to another?

You can contribute up to 100% of the lump sum distribution from the qualified plan.

How much time do I have to decide what I have to do when moving my retirement funds?

For a rollover, usually there is no rush. Many employers will let you keep your money invested in the employer-sponsored plan indefinitely while you consider all of your options. It depends on the terms of your former employer's plan, so be sure to review the plan rules.

What is the process for rolling over retirement funds?

You can do a direct or an indirect roll over. With a direct rollover, your former employer's plan sends all your money directly to another eligible retirement plan. No check will be made out to you. This is the best route to avoid complications.

An indirect rollover is more complicated. Your former employer's plan sends your money to you in the form of a check. A percentage of the funds are required to be withheld by your employer. It also becomes your responsibility to deposit the funds into another plan. Indirect rollovers are subject to strict time frames, and missing the deadline can result in a tax liability and a possible penalty. A financial consultant can guide you through this process.

Can I use money from my retirement plan in an emergency?

If you need income right away, one option may be to roll your funds into a traditional IRA and elect to receive regular payments. Under Internal Revenue Code Section 72(t), there may be some circumstances under which withdrawals can be made without an early withdrawal penalty. A financial consultant can provide you with more details on whether the rules apply to your situation.

Why should I choose Provident to assist with my rollover?

Our financial consultants are highly experienced and provide you with sound, unbiased advice. They do not represent any specific insurance or mutual fund companies and they have a wide range of options they can recommend and make available to you based on your individual needs. They can also meet at the time and place most convenient to you.

IRA FAQs Defined-Contribution Plans and 401k's