Blog

Quiz: What is a Rollover?

by Craig Moser on June 23, 2017

Many people think it’s easy to move retirement assets…but is it really?  Take our short quiz to test your knowledge and answer the question:  What is a Rollover?

 

The Quiz

  1. You are moving funds out of your employer-sponsored plan directly into your IRA account. Is this a rollover?

 

  1. You are moving funds out of your employer-sponsored plan into your IRA account. The check from your employer-sponsored plan is payable to you.  Do you deposit the check into your IRA account.  Is this a rollover?

 

  1. You are moving your IRA funds from one company-sponsored plan directly to another company-sponsored plan. Is this a rollover?

 

  1. You’re moving your IRA funds (IRA, SEP, SIMPLE, or ROTH) from one company to another company. You receive a check make payable to you and forward the check to the new company.  Is this a rollover?

 

  1. You inherit an IRA from a sibling and move the funds to a company in your state. The disbursement check is made payable to you and you give the check to the new company.  Is this a rollover?

 

Bonus Question

You inherit an employer-sponsored IRA plan from a sibling because you are named on the beneficiary form.  You receive a check payable to the inherited IRA and move the funds into an inherited IRA.  Is this a rollover?

 

Answers

  1. Yes. Under the tax code, all distributions from employer-sponsored plans are rollovers.
    • In this case, you have a direct rollover.
    • This is reported to both you (the plan participant) and the IRS on Form 1099-R.

 

  1. Yes. Under the tax code, all distributions from employer-sponsored plans are rollovers.
    • In this case, it’s classified as an indirect rollover and there is a mandatory 20% witholding on pre-tax amounts distributed.
    • You have 60 days from receiving the distribution to redeposit the total amount (the amount of the check + the amount of the 20% withholding) in another retirement account.
    • This is reported to both you (the plan participant) and the IRS on Form 1099-R.
    • Pre-tax funds not redeposited within the 60-day timeframe are subject to income tax and the 10% early distribution penalty (if applicable).

 

  1. No. In the IRA world, this is a direct transfer (trustee-to-trustee transfer.)  It is a non-taxable and non-reportable transaction.

 

  1. Yes. This is a 60-day rollover.  Unlike the employer-sponsored plan distribution, there isn’t a 20% mandatory withholding.
    • You have 60 days from receiving the distribution to redeposit into another IRA.
    • You can only do one of these transactions every fiscal year (12 months).
    • This is reported to both you (the plan participant) and the IRS on Form 1099-R.
    • This is also reported to you (the plan participant) and the company receiving funds on a Form 5498.
    • Pre-tax funds not redeposited during the 60-day timeframe are subject to income tax and the 10% early distribution penalty (if applicable).

 

  1. No. A non-spouse beneficiary isn’t allowed to do a 60-day rollover.  Inherited funds can only be moved as a direct transfer.
    • All distributions from your inherited IRA are taxable.

 

Bonus Question Answer

Yes.  Although distributions from an employer-sponsored plan are considered a rollover, Congress made an exception for inherited employer plans when the non-spouse beneficiary inherits directly.  (This means the beneficiary is actually named on the beneficiary form rather than inheriting through the estate).  These inherited employer plan funds are moved as a direct rollover to a properly titled inherited IRA.

 

Summary

Based on situations seen in my office, the term “rollover” appears to be used to describe any movement of retirement funds.  This isn’t always the case.  Rules are slightly different depending on whether funds come from an employer-sponsored plan or from an IRA.  It’s important to know all the details of a specific transaction before giving advice or deciding to move retirement funds.

Ready to get MORE out of your retirement?

Kickstart your retirement plan by requesting our complimentary MORE toolkit today.
Here's what you'll get:

Customized Social Security Benefit Summary
to help maximize the payments you are entitled to

Financial Organizer
to summarize all aspects of your financial affairs

Portfolio Evaluation
showing how your investments have performed historically and the fees that you are paying

Show Buttons
Hide Buttons