Harris: Romance, rollovers, and retirement

Moving money to reach your financial goals

By Charlestien Harris

Presidents Day honors those who have served our country as past presidents. Presidents are featured on our paper money, and rollover money matters are the subject of this article. Let’s explore what a rollover is, how it functions, and why it is an essential tool to help you manage your financial resources effectively.

A rollover occurs when you withdraw cash or other assets from one eligible retirement plan and contribute all or part of it, within 60 days, to another eligible retirement plan. This rollover transaction isn’t taxable unless the rollover is to a Roth IRA or a designated Roth account from another type of plan or account. However, it is reportable on your federal tax return. Include the taxable amount of a distribution not rolled over in income in the distribution year. Consider whether your retirement plan is qualified. Qualified retirement plans meet Internal Revenue Code (IRC) and Employee Retirement Income Security Act (ERISA) requirements, offering tax benefits like deductions for contributions and tax deferral of investment gains.

There are various ways to leverage this financial tool. Let’s explore some common ways to use the rollover tool to achieve your financial goals:

1. Direct IRA Rollover: In a direct rollover, the transfer of assets from a retirement plan to an IRA is facilitated by the two financial institutions involved. To participate, ask your plan administrator to send funds directly to the financial institution holding your IRA account. For IRA-to-IRA transfers, the custodian from the old account sends the rollover amount to the custodian of the new IRA.
2. Indirect IRA Rollover: In an indirect rollover, assets from your existing account or plan are liquidated. The custodian or plan sponsor then mails a check made out to you or deposits funds directly into your personal bank or brokerage account. You are responsible for redepositing the funds into the new IRA.
3. Traditional Individual Retirement Account (IRA): Another option is opening a traditional IRA account, allowing tax and penalty-free movement of money from a former employer-sponsored plan. Traditional IRAs offer tax-deferred growth, with contributions and earnings taxed only after age 73 according to IRS rules. Visit the IRS website for more information.

4. Roth IRA Account: This rollover option allows contributions of after-tax dollars towards retirement. Roth IRAs offer tax-free growth and withdrawals after age 59½, assuming the account is open for at least five years. Contribution limits for 2024 have increased to $7,000 annually or $583.33 monthly, with those aged 50 and older having a limit of $8,000 annually or $666.67 monthly.
5. Other Types of Qualified Plans: Qualified plans like the 403(b) plan have specific rollover rules. A SIMPLE IRA now accepts rollover contributions from various sources, expanding rollover options. Money Purchase Plans, resembling corporate profit-sharing programs, allow rollovers into a 401(k) or an IRA.

Numerous rollover options are available to secure your financial future. This list is not exhaustive, so research thoroughly before making significant financial decisions regarding your retirement. 

For additional information on this and other financial topics, visit our blog at banksouthern.com/blog, email me at Charlestien.Harris@banksouthern.com, or call me at 662-624-5776.

Until next week – stay financially fit!

Charlestien Harris is a financial contributor and a financial expert with Southern Bancorp Community Partners whose articles are seen in a number of publications around the region.