Fullerton, Lemann,
Schaefer & Dominick, LLP

Rollovers from Retirement Plans

If you withdraw assets from one qualified employer retirement plan and contribute them within 60 days to another qualified retirement plan or traditional Individual Retirement Account (IRA), you do not have to include the amount withdrawn in your taxable income for the year. You are entitled to roll over most distributions except for the nontaxable part of a distribution, a distribution that is one of a series of payments based on life expectancy or paid over a period of years, a required minimum distribution, or a hardship distribution.

The Internal Revenue Service has the authority to waive the 60-day rollover period in hardship situations where a failure to waive the deadline would be against equity or good conscience.

Rollovers are only available for benefits accumulated under certain types of plans. These plans include: qualified pension, profit-sharing, and stock bonus plans; IRAs (including SIMPLE accounts); tax-sheltered annuities organized by tax-exempt organizations; Roth IRAs; and governmental deferred compensation plans.

It is not necessary to roll over the entire amount withdrawn from the plan. However, any portion that is not rolled over within the 60-day period will be taxed as ordinary income and may be subject to a 10 percent penalty on premature distributions if the distributee is less than 59-1/2 years old.

Minimum distributions are required by IRAs, qualified plans, and tax-sheltered annuities after the participant reaches age 70-1/2. To the extent that distributions in a year are equal to or less than those required under the minimum distribution rules, they may not be rolled over.

If a distribution is made to a taxpayer, it is subject to a mandatory withholding of 20 percent even if the taxpayer intends to roll it over within the statutory 60 days. Distributions transferred directly from one eligible plan to another or to an IRA are not subject to this mandatory withholding requirement.

If a taxpayer has made a tax-free rollover, he or she must wait at least one year from the date of receipt of the amount withdrawn before the taxpayer is eligible to make another tax-free rollover. This one-year limitation applies to each separate IRA account owned by the taxpayer. Therefore, if the taxpayer rolls over a distribution from one IRA account, he is entitled to roll over a distribution from another IRA account even before the year is over. The mere change of trustee or custodian is not considered a rollover, and therefore the one-year limitation does not apply.

San Bernardino Office

1809 S. Commercenter West
San Bernardino CA, 92408
Tel: 909-889-3691
Newport Beach Office

369 San Miguel Drive, Suite 265
Newport Beach, CA 92660
Tel: 949-419-6163
RSM Office

30211 Ave. De Las Banderas, Suite 200
Rancho Santa Margarita, CA 92688
Tel: 760-779-9572
Palm Desert Office

77564-A Country Club Dr. Suite 132
Palm Desert, CA 92211
Tel: 760-779-9572

© 2014 Fullerton, Lemann, Schaefer & Dominick, LLP