Tips for Penalty-Free Retirement Plan Rollovers


The article discusses three common rollover mistakes that individuals make when moving money between retirement accounts, such as a 401(k) or individual retirement account (IRA). According to Denise Appleby, CEO of Appleby Retirement Consulting, one of the biggest mistakes is breaking the one-year rule for IRA to IRA rollovers. This rule states that you cannot make more than one rollover from the same IRA within a 12-month period, or else you may face tax consequences and penalties. It is important to be patient and follow the rules to avoid these penalties.

Another common mistake mentioned is missing the 60-day retirement plan rollover deadline. When you receive the proceeds from a retirement plan or IRA, you have 60 days to complete the rollover. If you exceed this deadline, the money may be treated as a taxable distribution unless you qualify for an IRS waiver. Appleby emphasizes that life can sometimes get in the way, causing individuals to miss the deadline, so it is crucial to be aware of this timeframe and plan accordingly.

Lastly, the article highlights the importance of understanding the exceptions for early withdrawals and penalties. Many retirement plan distributions are taxable and incur a 10% early withdrawal penalty, unless you qualify for specific exceptions. However, these exceptions may not apply after transferring money between different types of retirement accounts. For example, certain exceptions apply only to IRAs and not 401(k) plans. Therefore, it is essential to review the list of exceptions before completing a rollover to ensure that you do not lose eligibility for any specific exceptions.

In summary, individuals should avoid breaking the one-year rule for IRA rollovers, stay within the 60-day deadline, and carefully consider the exceptions for early withdrawals and penalties when moving money between retirement accounts. Being aware of these mistakes and following the rules can help individuals avoid unnecessary taxes and penalties and maximize their retirement savings.

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