Top 10 IRA Rollover Mistakes

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.