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An IRA rollover refers to the transfer you make from a retirement account you own to a Roth IRA or a traditional IRA. This happens in either of two ways. You may opt for a direct transfer from the retirement account or have a check sent to you. With this second option, you deposit the funds into the IRA account of your choosing.
When you select to transfer funds by depositing a check yourself, the custodian of the distributing retirement account is legally required to deduct a 20 percent federal withholding penalty before you are issued a check. You can avoid this penalty by choosing an IRA rollover, which directly transfers the money from one retirement account to the other.
Some IRAs may restrict you to just one rollover between one IRA and another IRA in one year. In most cases, a rollover occurs when you leave a job and decide to transfer your 401K or your 403B funds into an IRA account. When considering this investment option for your funds, keep in mind that an IRA offers far greater choices for investments while offering the same income and tax-free gains as a 401K retirement account. Business.com provides resources for small business owners who need additional information on IRA rollovers. To learn more, access our links on this page.