Rollovers from Retirement Plans

A rollover occurs when you withdraw cash or other assets from one eligible retirement plan and contribute all or part of it, within 60 days, to another eligible retirement plan. This rollover transaction is not taxable but it is reportable on your federal tax return. You can roll over most distributions from an eligible retirement plan except for:

• The nontaxable part of a distribution, such as your after-tax contributions to a retirement plan (in certain situations after-tax contributions can be rolled over),
• A distribution that is one of a series of payments made for your life (or life expectancy), or the joint lives (or joint life expectancies) of you and your beneficiary, or made for a specified period of 10 years or more,
• A required minimum distribution,
• A hardship distribution,
• Dividends on employer securities, or
• The cost of life insurance coverage.

Further exclusions exist for certain loans and corrective distributions.

The taxable amount of a distribution that is not rolled over must be included in income in the year of the distribution.

If an eligible rollover distribution is paid to you, you have 60 days from the date you receive it to roll it over to another eligible retirement plan. Any taxable eligible rollover distribution paid from an employer-sponsored retirement plan to you is subject to a mandatory income tax withholding of 20%, even if you intend to roll it over later. If you do roll it over, and want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld. You can choose to have the payer transfer a distribution directly to another eligible retirement plan or to an IRA. Under this direct rollover option, the 20% mandatory withholding does not apply.

In general if you are under age 59½ at the time of the distribution, any taxable portion not rolled over may be subject to a 10% additional tax on early distributions unless an exception applies. For a list of exceptions refer to Topic 558. Certain distributions from a SIMPLE IRA will be subject to a 25% additional tax. For more information on SIMPLE IRAs, refer to Publication 590, Individual Retirement Accounts.

For further information about rollovers and transfers, refer to IRS Publication 575, Pension and Annuity Income.

Source: Internal Revenue Service
Last reviewed: September 23, 2013