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Each year, thousands
of investors roll their savings from company retirement plans
to IRAs or from existing IRAs to new accounts. However, if not
done properly, what should be a relatively simple transaction
could become a tax nightmare.
For example, take the
hypothetical case of John and Harriet. John was retired; had
rolled his $250,000, 401(k) into an IRA; and invested in
several mutual funds. When the account dropped to $225,000,
John withdrew his money and deposited it in his checking
account. The bank offered John a higher amount of FDIC
coverage if he opened individual accounts for both John and
Harriet. John followed that advice and invested in two CDs,
$100,000 each for him and his wife. Neither account was an
IRA.
When it came time to
do their taxes, John and Harriet declared a $25,000
distribution even though he received a 1099-R form showing a
$225,000 withdrawal. The following year, the IRS came knocking
at the door and handed John and Harriet a tax bill for over
$63,000. How could this happen?
Rollovers from an IRA
or retirement plan must go
directly to another IRA or company retirement plan. You cannot
put the money into a non-IRA account and still maintain the
tax-deferred status. Furthermore, you cannot do as John did
and transfer the money to your spouse, even if it is to his or
her IRA.
Please contact us
prior to moving IRA funds to avoid a simple mistake.
For a
free illustration on how the lifetime income from an immediate
annuity can add to your
retirement planning,
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Request your FREE Retiree Financial Guide Today!
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