The No. 1 fatal error that will end your IRA
These errors cannot be fixed, so you must be careful when moving your IRA funds
Older adults are worried about retirement funds running out
A recent AARP survey finds that over half of adults over 50 are worried about having enough money for retirement.
The tax rules that apply when you attempt to roll over your IRA funds are all complicated, and some are rigid and unforgiving. So, violating one of those rules can be fatal, and costly.
There are no do-overs. These errors cannot be fixed, so you must be extremely careful when moving your IRA funds.
The once-per-year IRA rollover rule
One particularly insidious rule limits the number of IRA rollovers you can do.
For an IRA worth $500,000, between income tax and penalty, you could be looking at an unexpected tax bill of over $200,000 – and you no longer have an IRA. (iStock / iStock)
Say you’d like to move your IRA funds from one account at a bank, broker or fund company to another, or from one financial adviser to another. You might want to change advisers, investments or banks, for example. That’s OK. But be careful how often you move those funds.
HIGH INFLATION IS CHANGING THE WAY AMERICANS RETIRE
You can only do an IRA-to-IRA rollover (or Roth IRA-to-Roth IRA rollover) once a year, but it’s not a calendar year. It’s 365 days. For example, if you do a rollover in December, you cannot do another one in January just because it’s a new year. You must wait a full 365 days until the following December to do another IRA-to-IRA rollover.
This rule covers what’s known as a "60-day rollover," where you withdraw your IRA funds from one IRA and roll them over (deposit them) to another. You have 60 days to return the funds to another IRA, or they become taxable.
Grant Cardone sends message to U.S. families: Your retirements are at ‘risk’
Private equity fund manager Grant Cardone unpacks his warning to Americans about their retirement savings on ‘The Big Money Show.’
If you miss the 60 days, that mistake may be fixable if you had a good reason why you could not complete the rollover in time, like an illness, a death in the family or an error by the financial institution. The IRS can allow an extension of the 60-day rule in cases like this.
However, if you break the one-rollover-per-year rule, that is a fatal error, and it cannot be undone or excused by the IRS. Taxes will be owed, and you will no longer have that IRA. In addition, if you happen to be under age 59½ you could also be subject to a 10% penalty for an early distribution.
THE 'MAGIC NUMBER' TO RETIRE COMFORTABLY HITS A NEW ALL-TIME HIGH
For an IRA worth $500,000, between income tax and penalty, you could be looking at an unexpected tax bill of over $200,000 – and you no longer have an IRA. Thirty years of sacrifice and savings is gone in 30 seconds!
We need to make income the new retirement outcome: Nick Nefouse
BlackRock Global Head of Retirement Solutions Nick Nefouse discusses the company's annual Read on Retirement survey on 'The Claman Countdown.'
This strict rule has caught many by surprise, especially when you have several IRAs. The once-per-year rule applies to all your IRAs, not separately to each one. Once you do an IRA-to-IRA rollover from one of your IRAs, you can no longer do any more 60-day IRA-to-IRA rollovers with any of your other IRAs for another 365 days. And that includes any SEP or SIMPLE IRAs you may have.
Fortunately, there are exceptions to this rule. The once-per-year IRA rollover rule does not apply to rollovers from your 401(k) to your IRA, or from your IRA back to your 401(k). It also does not apply to a rollover from your IRA to a Roth IRA, because that is a taxable Roth conversion. The rule only applies to rollovers from IRAs to other similar types of IRAs.
Is Gen Z off to a good start investing for retirement?
'Barron's Roundtable' discusses reports that Gen Z members are aggressive about wanting to retire.
Before accepting your IRA funds, any worthwhile financial firm or adviser should ask you whether you have done a previous rollover within the last 365 days. Even better, to protect you, they should not even accept your funds as a 60-day rollover. But not all advisers think about this or provide this advice. (If yours doesn’t, think about taking your business to one who knows these rules.)
RETIREMENT CRISIS LOOMS AS WOMEN'S SAVINGS JUST ONE-THIRD OF MEN'S: REPORT
This is an awful system, but these are the tax rules.
Here’s what to do to prevent this from ever happening to you:
Don’t do 60-day rollovers!
Larry Fink reveals how Americans can rethink retirement
BlackRock Chairman and CEO Larry Fink discusses saving money for retirement on 'The Claman Countdown.'
Instead, when you wish to do an IRA-to-IRA rollover, arrange for direct transfers from one IRA account to the other without you ever touching (withdrawing) the funds in between.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
If you do only direct transfers, you can do as many as you wish, and the once-per-year rollover rule no longer applies. That’s because the funds were never physically withdrawn from your IRA. Instead, they were directly transferred. By doing it this way, you also never have to worry about the 60-day time limit, since the funds are transferred instantly.
The lesson here for everyone with an IRA who wishes to move the funds at some point is to only do direct transfers and not 60-rollovers.
CLICK HERE TO READ MORE ON FOX BUSINESS