Roth IRA Rollover

A Roth IRA rollover can often present a great opportunity for many people, sometimes providing benefits and advantages which reach into the tens of thousands of dollars. However, this isn't to assume that it is always beneficial, and so it is well worth considering some of the implications which might arise with a Roth IRA rollover.

A Roth IRA has an annual limit on how much can be contributed. However, when it comes to rollovers there is actually no limit at all on how much you can transfer across, or roll over into a standard Roth IRA. The transfer is entirely tax free, and involves the transfer of assets from one retirement plan to another.

The main difference between a standard transfer and an IRA rollover is that whilst the transfer may be a private matter, the rollover must be reported. This distribution of assets is reported to the IRS, and the IRA owner cannot make another rollover or transfer within the same 12-month period. In other words, you can make one rollover per year, as long as this is reported and complies with all other requirements.

It is also worth pointing out that although a rollover contribution might well come from a distribution that has originated from the very same IRA account, or another IRA account you may have, the rollover contribution has to be completed within sixty days following the receipt of the distribution in the first place.

The first thing to consider carefully is why you might want to rollover at all. There are certainly several benefits which may well encourage you to take this course of action. To begin with, you are very likely to benefit to the tune of many thousands of dollars. The reason for this is that your Roth IRA will become much bigger than a normal or traditional IRA will, but without the tax issues facing the normal IRA accounts.

With traditional IRA accounts then when it comes to withdrawing or distributing from these, you will be facing a large tax bill. However, with a Roth IRA your money is tax free, even though it was paid in to a scheme that meant the money would eventually be taxed. The larger the rollover sum, effectively the more tax you'll be avoiding, hence the financial gain.

Another benefit is that traditional IRAs usually require you to receive minimum distributions once you reach the age of 70 and a half. However, with a Roth IRA you can keep the money in there for as long as you like, meaning that you can continue to keep the money working for you, gaining interest and value at a rate that will be higher than the reducing sum that would otherwise be sitting in a standard IRA account.

For those who are fortunate enough to have a fair amount of wealth, and who might be facing estate tax, by converting to a Roth IRA the tax liability may well be reduced. If this could apply to you, bear in mind that if you have a traditional IRA, this can be counted as part of the estate once you die, and this will in turn mean that a portion of it will go directly to the taxman.

However, if this has been converted to a Roth IRA then it is deemed to be the case that you will have already paid the income tax, and so it is not counted. This means that your estate value will not include the IRA value, and this could in turn mean that the overall tax liability is massively reduced. Your family and heirs will receive a good deal more than they would do had your money remained in a traditional IRA.

All of these advantages are very good reasons why you may want to carry out a Roth IRA rollover, and are used frequently by brokers, traders and financial institutes who would wish to encourage you to carry out such action. Certainly, in most people's cases a Roth IRA rollover is exactly the right course of action, and results in significant financial benefits. However, this isn't always the case, and in some cases, an IRA rollover can cost several thousands of dollars.

The main reason why such an action can turn out to be a bad move is if you intend to withdraw from the Roth IRA fairly soon, or consider that you might possibly be in the position where you may need to do this. In such a case, you could be facing severe penalties and tax liabilities. However, if you are quite sure that you will be able to leave the rollover amount, and the main capital of the Roth IRA, in the account for as long as necessary, certainly five years, and then you should be safe. For this reason, think very carefully about what the future use of your Roth IRA account.

It will also be important to be aware that whilst a Roth IRA rollover might be a good option for you, it might also be worth considering a Self Directed Roth IRA, which can provide greater freedom and control over your money, wherever it has come from. If you've invested well previously, and are rolling over to a Roth IRA account, then you may well wish to have a greater say in how your account is run. Back to "Roth IRA vs. Traditional IRA".