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HomeFinance NewsTips for Penalty-Free Retirement Plan Rollovers

Tips for Penalty-Free Retirement Plan Rollovers

This news article highlights three common mistakes that individuals make when rolling over retirement funds between accounts. The first mistake is breaking the one-per-year IRA to IRA rollover rule, which typically happens due to impatience. According to Denise Appleby, CEO of Appleby Retirement Consulting, if you make more than one IRA rollover from the same IRA within a 12-month period, you may have to include the rollover in your gross income and pay a 10% early withdrawal penalty if you’re under the age of 59½. Additionally, the IRS treats the additional rollover as an excess contribution, subjecting it to a 6% annual levy.

The second mistake is missing the 60-day retirement plan rollover deadline. Appleby explains that you have 60 days to complete a retirement plan or IRA rollover, starting from when you receive the funds. If you fail to meet the deadline, the money may be treated as a taxable distribution, unless you qualify for an IRS waiver. Life events and unforeseen circumstances can often lead to missing this deadline, so it’s essential to be aware of the consequences.

The third mistake involves losing eligibility for certain exceptions when transferring funds from a 401(k) to an IRA, or vice versa. Different retirement plans have specific exceptions to avoid penalties and taxes, but they may not apply after transferring money between accounts. For example, the article mentions that there is a 10% penalty exception of up to $10,000 for first-time homebuyers with IRAs, but not with 401(k) plans. It’s crucial to review the exceptions and eligibility criteria before proceeding with a rollover to avoid losing these benefits.

In conclusion, individuals should be cautious when rolling over retirement funds to avoid common mistakes that can lead to tax penalties and other financial consequences. Breaking the one-per-year IRA to IRA rollover rule, missing the 60-day deadline, and losing eligibility for exceptions are among the errors discussed in the article. By being patient and informed, individuals can navigate the rollover process successfully and maximize their retirement savings.

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