A rollover IRA is an individual retirement annuity you create with tax-deferred assets you move from an employer sponsored retirement plan to a self-directed investment account.
If you arrange for a direct rollover, the trustee of your employer's plan transfers the assets to the trustee you select for your IRA. In that case the total value of the account moves from one to the other.
If you handle the rollover yourself, by getting a check from your employer's plan and depositing it in your IRA, your employer must withhold 20% of the total to prepay taxes that will be due if you fail to redeposit the full amount of the money you're moving into a tax-deferred account within 60 days.
The required withholding forces you to supply the missing 20% from another source to meet the deposit deadline if you want to maintain the tax-deferred status of the full amount and avoid taxes and a potential early withdrawal tax penalty on the amount you don't deposit in the IRA.
- Browse Related Terms: 403(b) Plan, Central Registration Depository (CRD), Conduit IRA, Funds Receivable, Guaranteed investment contract (GIC), IRA rollover, Plan administrator, Plan provider, Plan sponsor, Rollover, Rollover IRA, transfer