What is a Rollover IRA?

Common questions

What is the difference between a rollover and transfer of assets?

A rollover is when you move 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 withholding. See the question below around direct and indirect rollovers to understand both options and their tax consequences. 

A transfer of assets is when you instruct your retirement account provider to move funds directly 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.

Are there fees associated with a Schwab Rollover IRA?

There are no fees to open or maintain a Rollover IRA at Schwab. You only pay fees for transactions you make in the account, such as trading stocks, or for investments you hold in the account, such as operating expenses on mutual funds. See the Charles Schwab Pricing Guide for Individual Investors and its amendments for comprehensive details on fees.

What types of retirement plans can I roll over?

Eligible employer-sponsored retirement plans are those that you receive qualifying distributions from, and include 401(k) plans, 403(b) plans, profit-sharing plans, money purchase plans, and Keoghs/Qualified Retirement Plans (QRPs). 

Plans that may not be eligible include employee stock ownership plans (ESOPs) and defined benefit plans. 

You may be allowed to roll over after-tax dollars and governmental 457(b) qualifying distributions. Contact your plan administrator(s) to find out if your particular plan is eligible for rollover.

What is the difference between a direct rollover and an indirect rollover?

With a direct rollover from an employer-sponsored plan to an IRA, the administrator of your plan delivers your distribution directly to the financial provider where your Rollover IRA is held. Since you never actually take possession of your assets, there is no mandatory 20% federal tax withholding. 

With an indirect rollover, you do receive the assets from your employer-sponsored plan, and roll over either all or a portion of the assets into another eligible plan within 60 days of receiving the distribution. Your employer may be required to withhold 20% for federal income tax. However, you can recover the deduction if you roll over the amount you received from your prior employer plus the 20% that was deducted. You will receive the refund in the form of a tax credit when you file your tax return.

What if my employer made my rollover distribution check payable to me, rather than to Schwab?

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 deduction if you roll over the amount you received from your prior employer plus the 20% that was deducted. 

Please see IRS Publication 590 or talk with your tax advisor for more details.

I am not sure how to request a rollover from my prior employer. What should I do?

Call a Schwab Rollover Consultant at 866-855-5635 and we will work with your former plan administrator to make sure your retirement savings are rolled over properly. Please talk with your tax advisor for details about your specific situation.

Am I responsible for tracking my pre- and post-tax rollover contribution amounts?

Yes, you are responsible for tracking your tax basis. All rollovers are tax-reportable events on IRS Form 1099-R for the distributed amount and Form 5498 for the contributed (rollover) amount.

Can I make contributions to my Rollover IRA once it is open?

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, you should check with your new employer regarding their plan's rules.