Have questions about Rollover IRAs? Here are answers to some of the most common questions we hear. If you have a specific question that's not answered here, call us at 866-855-9095.
A Rollover IRA allows you to move your assets from a qualified employer-sponsored retirement plan (such as a 401(k) plan) by “rolling over” the amount into an IRA. A Rollover IRA preserves the tax-deferred status of your retirement assets, allowing you to avoid current taxes and early withdrawal penalties on payouts received from your employer’s retirement plan when you change jobs or retire.
Within a Rollover IRA, you can choose from thousands of investments, including stocks, bonds, CDs, and mutual funds.
A rollover is the movement of funds from one eligible retirement plan to another, such as from a 401(k) to a Rollover IRA. Rollover distributions are reported to the IRS and may be subject to federal income tax.
A transfer is the movement of funds between two accounts of the same type, such as from one Traditional IRA to another Traditional IRA. Transfers can take place as often as you like. They are not reported to the IRS because you never take possession of your money.
There are no fees to open or maintain a Rollover IRA. Also, there are no monthly, annual, or inactivity fees1. The only fees you will incur will be for the actual transactions you make in the account, such as trading stocks or opening a CD or money market fund.
A Rollover IRA allows you to choose from thousands of investment options that meet your goals and risk tolerance, including stocks, bonds, CDs, ETFs, and mutual funds.
Eligible employer-sponsored retirement plans include the following, provided you are receiving qualifying distributions from them:
- 401(k) plans
- 403(b) plans
- Profit-sharing plans
- Money purchase plans
- Keoghs/Qualified Retirement Plans (QRPs)
Plans that may not be eligible include:
- Employee stock ownership plans (ESOPs)
- Defined benefit plans
You may be allowed to roll over after-tax dollars and governmental 457(b) qualifying distributions. You should contact your plan administrator(s) to find out if your particular plan is eligible for rollover.
A 60-day rollover allows you to move money between IRAs by taking a distribution from one IRA and rolling it over to a different IRA. There are a few restrictions, however:
- You may execute only one 60-day rollover every rolling 12-month period per IRA. This 12-month period is measured from the original date of distribution.
- For one year from the date of the rollover, you may not make a tax-free rollover of any previously distributed amount from the IRA that received the original 60-day rollover.
- You must complete the rollover within 60 calendar days of receiving the distribution, or your distribution is treated by the IRS as income and is subject to tax and penalties.
Schwab recommends that you check with your tax advisor to determine the best solution for your individual situation.
Through a direct rollover, you never actually take possession of your retirement assets. Specifically, you request that the trustee or administrator of your employer-sponsored retirement plan deliver your distribution directly to one of two destinations:
- The financial provider where your Rollover IRA is held
- Another eligible retirement plan
Since you never directly take possession of the assets, there is no mandatory 20% federal tax withholding for this type of rollover.
An indirect rollover enables you to directly receive the assets from your employer-sponsored plan and, at your discretion, to roll over either all or a portion of the assets into another eligible retirement plan within 60 days of receiving the distribution.
Please note that your employer may be required to withhold 20% for federal income tax. However, you can recover the deducted amount by making sure that you roll over the amount you received from your prior employer plus the amount that was deducted within 60 days. By funding your new retirement plan with 100% of your payout, you will receive the refund in the form of a tax credit when you file your tax return. Schwab recommends that you check with your tax advisor to determine the best solution for your individual situation.
If your employer sends you a rollover distribution check made payable to you, you can deposit it directly into your Rollover IRA. Be sure to write your Schwab Rollover IRA account number on the check and deposit it within 60 days to avoid taxes and penalties.
Your plan administrator may have withheld 20% for federal income tax. You can recover the deducted amount by making sure that you roll over the amount you received from your prior employer plus the 20% that was deducted. Schwab suggests that you refer to IRS Publication 590 or talk with your tax advisor for more information.
Our team of Rollover Consultants can take care of it for you. Just call 866-855-9095. They’ll open your new Schwab Rollover IRA and will work with your former plan administrator to make sure your retirement savings are rolled into your new account in a timely and tax-free manner2.
Yes, but if you do, you may not be able to roll the IRA into a new employer-sponsored retirement plan. Different plans determine which assets, if any, will be accepted. If you think you might start a new job in the future, keep this in mind. You should check with your new employer regarding their plan’s rules.
Yes. You can move your assets between employer-sponsored plans and IRAs. However, if you have assets coming from differing types of plans, e.g., 401(k) and 403(b) plans, you may want to maintain separate IRAs for each. Your new employer may or may not allow you to roll over combined retirement assets into their plan.
As of 2002, you can combine any assets held in a Traditional IRA, a Rollover IRA, or an employer-sponsored retirement plan like a 401(k), 403(b), or 457(b), including any after-tax employee contributions. But not every employer-sponsored plan will allow you to roll over combined assets. You should check with your new employer regarding their plan’s rules. Schwab recommends that you consult a tax advisor for more details.
To avoid the mandatory withholding, contact your prior employer and request that they transfer all of your retirement plan payout directly to your Rollover IRA.
You are eligible to retrieve the amount that was withheld if you deposit your retirement assets into a Rollover IRA within 60 days. Your deposit must be equal to the amount of your distribution plus the amount that was withheld by your prior employer. By funding your Rollover IRA with 100% of your payout, you will receive the refund in the form of a tax credit when you file your tax return.
If you do not make up the difference of the amount withheld, it will be considered a distribution and will be taxed as ordinary income. In addition, the amount may also be subject to a 10% early withdrawal penalty.
Take the next step.
Open a Schwab Rollover IRA today.
Apply Now or call a Schwab Rollover Consultant at 866-855-9095.
1. There are no fees to open or maintain your account. Other fees may apply; please see pricing details.
2. Please consult your tax advisor regarding your specific situation.
This information is for general informational purposes only and is not intended as an individualized recommendation or a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager.