IRA IRA Rollovers and Transfers

Question 1

What is the key difference between a direct IRA transfer and a 60-day rollover?

Accepted Answer

In a direct transfer, funds move directly between institutions; in a rollover, the account holder receives the funds then re-deposits them

Answer

In a direct transfer, the custodian sends funds directly to the new institution with no tax withholding; in a 60-day rollover, the account holder receives the funds and must re-deposit them within 60 days.

Question 2

How many times per year can an individual perform an indirect (60-day) IRA-to-IRA rollover?

Accepted Answer

Once per year across all IRAs

Answer

Under IRS rules (after the Bobrow v. Commissioner case), only one indirect rollover is allowed per year across all of an individual's IRAs combined.

Question 3

When rolling over a 401(k) to a traditional IRA, how much mandatory withholding applies to a lump-sum distribution?

Accepted Answer

20%

Answer

Employer plans are required to withhold 20% for federal taxes on lump-sum distributions, even if you intend to roll the funds over.

Question 4

What must the account holder do if 20% was withheld from a 401(k) distribution they intend to roll over to an IRA?

Accepted Answer

They must deposit the full pre-withholding amount using other funds within 60 days to avoid tax on the withheld portion

Answer

To avoid taxes on the 20% withheld, the account holder must deposit the full original amount (making up the 20% from other funds) into the IRA within 60 days.

Question 5

Can a Roth 401(k) be rolled over directly into a Roth IRA?

Accepted Answer

Yes, and no taxes are owed on a qualified direct rollover

Answer

A Roth 401(k) can be rolled directly into a Roth IRA tax-free, and the Roth IRA's 5-year clock controls qualified distributions going forward.

IRA - Individual Retirement Account Practice Test

IRA - Individual Retirement Account Practice Test

IRA IRA Rollovers and Transfers