IRA rollover conversions

A Traditional Individual Retirement Arrangement (IRA, also referred to as an Individual Retirement Account, can be funded in several ways. The simplest is to

transfer funds from an existing retirement account to an IRA in the form of a rollover. In order to do this or fund an IRA in other ways, an account must first be opened. Once an investor has an open IRA, they can invest up to the maximum annual amount year after year to the same account. Then lump sum payments by check or transfer can be made any time within the year, and even up through April 15 of the next year to be counted in the previous tax year.

Funding an IRA

To open an IRA a brokerage firm can be employed that will allow the investor to choose the type of investment they want to use to fund their account. Banks offer IRAs as well and will outline how the funds are invested.

Opening an IRA account

When choosing how to open the account, investors should make sure they are clear on the fees charged by the broker or bank. Laws are in place that allow maintenance

and transaction fees even on IRAs. If the fees are too high, or if the investor makes too many trades for instance, then a higher percentage of their annual maximum contributions will be spent on fees when it should be going toward retirement savings.

IRA investment holdings

Once an account has been opened, then the investor is free to choose what type of mutual funds or stocks or other investment such as an index fund they wish to make. Buy and hold agreements can be set up to help minimize the number of trades which will carry transaction fees.  Stock that is currently owned by an investor can not always be transferred in order to fund a traditional IRA. If the stocks are with a brokerage firm, then they cannot be used to fund the IRA. However, if stocks are part of a qualified employer retirement account and are already owned by the investor, then they can be used to fund a new IRA.

IRA Rollovers

When funds are simply transferred from one type of IRA to another, it is a simple transaction that requires little paperwork on no reporting on a tax return. If funds are withdrawn from another IRA or a retirement account, they must be reinvested within 60 days or they will be subject to penalties and taxes. A direct rollover from a retirement account where the funds go straight from one account to another without going into the hands of the investor, does require reporting on a tax return, but does not run the risk of being penalized. If the investor does not make an eligible withdrawal and does not re-invest the funds by the deadline, they will pay a 10 percent penalty along with taxes on whatever amount has not been transferred in time.

Timing your IRA rollover

To transfer funds from a certificate of deposit or other account where early withdrawal fees are charged, then it is a good idea to wait until the anniversary of the account before making the change over to an IRA. Much of the earned interest could be forfeited if it is withdrawn too early.