TIRA or Rollover IRA
Can you please clarify when we would use the registration type “Rollover IRA” or is it not a big deal? I know that we have clients that rolled over their 401k into a TIRA, would this be a bad thing?
Can you please clarify when we would use the registration type “Rollover IRA” or is it not a big deal? I know that we have clients that rolled over their 401k into a TIRA, would this be a bad thing?
Permalink Submitted by Peggy Fisher on Wed, 2013-10-09 16:26
Although rollover and transfer rules between Traditional and ROTH IRAs accomplish the same goal, the rules and procedures are different.A rollover is a tax-tree transfer of cash or other assets from one employer-sponsored retirement plan or IRA to another.In contrast to a rollover of assets from an employer sponsored plan to your IRA, a “transfer” of the investments in your IRA directly from one IRA trustee to another is not reported to the IRS and is not considered a rollover. A transfer is never deemed a taxable “distribution” and is not subject to the one-year waiting period that applies to rollovers.There are additional differences.
Permalink Submitted by mk foss on Wed, 2013-10-09 18:08
There is not a problem generally in calling an IRA Traditional vs rollover, with one exception. If bankruptcy is a possibliity, amounts rolled over from a qualified plan are exempt assets but there is a dollar limit for traditional IRAs. It’s over a million of exemption but there is one.You’d use the term “rollover” when it’s a rollover from a qualified plan – it if’s just a rollover from another IRA, the rollover terminology may be misleading.
Permalink Submitted by Alan - IRA critic on Wed, 2013-10-09 20:19
There is no downside for a TIRA to be titled as a “Rollover IRA” but there are two possible benefits, so attempting to maintain the “Rollover” in the registration is worthwhile. The first benefit is the unlimited dollar protection of the IRA balance in bankruptcy in states that have not opted out of the federal law as mentioned above. The second is that some employer plans will only accept IRA rollovers if the IRA is a rollover IRA because they think this reduces the chance of their plan acquiring non deductible IRA contributions which is disallowed. They think an IRA that originated with an employer plan is less likely to exceed the pre tax amount of all the person’s IRA accounts, although it still is possible. Many IRA custodians are sloppy about removing the “rollover” from the title of an IRA when other IRA accounts are rolled into the rollover IRA or even if a regular IRA contribution is made to the account, therefore the actual accuracy of the term can be very questionable.