Top 10 IRA Rollover Mistakes
Aaron Lieberman |
1. IRA-to-IRA Rollovers and Roth IRA-to-Roth IRA Rollovers:
- Using 60-day IRA rollovers instead of using transfers to move IRA funds
- Once-per-year rule is for all IRAs and Roth IRAs
- IRS has no authority to correct these mistakes
- New client rollover mistakes - not asking about prior rollovers
- Not knowing the exceptions to the once-per-year IRA rollover rule
2. Non-Spouse Rollovers are NOT Permitted:
- Non-spouse beneficiary cannot do a rollover
- Taking a lump-sum distribution
- Putting a decedent’s IRA funds into your own IRA
- Paying out the entire IRA to a trust beneficiary
3. Spousal Rollovers:
- Spousal rollover before age 59½
- Forgetting to do the spousal rollover at age 59½
- Not naming a successor beneficiary of the inherited IRA
4. 401(k) Rollovers to IRAs:
- Not reviewing all options (IRA rollover is not the only option.)
- Receiving a distribution personally and being subject to 20% withholding
- Not knowing the creditor protection of IRAs in your state
- Not first asking about the NUA (net unrealized appreciation) tax break
- Rolling over highly appreciated company stock to an IRA
- Not allocating the after-tax portion (basis) to a Roth IRA tax-free
5. After-Tax Rollovers From Plans to IRAs and Roth IRAs:
- Not being aware of the allocation rules that allow the tax-free Roth conversion of after-tax plan funds
- Failing to allocate pre-tax and after-tax amounts to the correct account
- Taking only after-tax funds out for tax-free Roth conversions (generally won’t work)
- Rolling over all funds to a traditional IRA (rules do not apply to IRA distributions)
- Choosing to receive all funds personally
Copyright © 2022, Ed Slott and Company, LLC Reprinted from The Slott Report, 2022, with permission. Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.