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Rollover IRAs

A rollover IRA is simply a special IRA into which you place moneys that had already been invested in a special retirement program sheltered from taxes. There are times when you might need a rollover IRA:

  • You're leaving a company in which you have accrued employer-sponsored retirement plan benefits.
  • You receive a lump sum distribution of your spouse's retirement account as a result of death or divorce.
  • You have an IRA with a bank or broker and want to take advantage of an investment opportunity at a different location or with a different trustee.
Normally, you would be subject to withholding taxes and penalties for early withdrawal if you simply took the money yourself. However, a rollover IRA shelters you from these taxes and penalties. It basically lets you move money from one retirement account to another.

You open a rollover IRA account the same way you open a regular account, but you must specify that it is a "roll-over IRA." You should also tell your employer or the bank holding the IRA from which you are moving the money, that you want it transferred directly into your rollover IRA account.

Keep the money in your roll-over IRA separate from that of any IRAs you may have that you make regular investments into. This allows you to then move the funds into another employer-sponsored plan if you wish.



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