- When you transfer money from one qualified retirement account --- a 401(k), 403(b), IRA, or other such account --- to another, the money stays tax-protected as long as you transfer from like to like and follow certain guidelines. The transfer from one traditional retirement account to another, or from one Roth IRA to another, is called a rollover.
- In most cases, when you request a rollover the original account will be liquidated --- all assets sold --- and the value transferred in cash. This is especially true if you are transferring from an employer-sponsored account like a 401(k) to an individual account like an IRA. Cash may be transferred directly to the new account, or you can request a check that you may deposit by hand into the new account. In either case, the rollover must be completed within 60 days or it is considered a distribution.
- In some cases, you may be able to have assets transferred "in kind" --- that is, shares of stock and other assets will be re-registered to the new account rather than sold. This can be advantageous if assets in your account have appreciated considerably; a transfer-in-kind allows you to keep what you already hold, rather than re-purchasing a lesser number of shares. There is no tax benefit, however, as a completed rollover is not a taxable event, and distributions from qualified accounts are taxed at ordinary income rates no matter what their source.
- When you complete a qualified plan rollover, you do need to report it on your taxes for the year. It's important to report the rollover correctly so you are not taxed on the event or charged a penalty. Rollovers are reported on lines 15 and 16 of the IRS Form 1040 --- review the instructions for that form to correctly report your transaction.
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