Pitfall 1: Timing

From AIG Funds

Not rolling your assets over on time could lead to federal and state income taxes of up to 45%!

Rollerover mistake - 60 day rule

Three basic ways to roll assets from one retirement plan to another: Transfer, Direct and Indirect Rollover

In both transfer and direct rollovers, the assets are moved without the need for you to take control of the assets. In an indirect rollover, you withdraw the assets and then roll it over into a new IRA or plan.

Transfers and direct rollovers are tax-free, but indirect rollovers are not, unless the assets are rolled into another IRA or plan within 60 days. Miss this 60-day deadline and you will end up paying federal income tax of up to 35%, state income tax of up to 9.5% (depending on the state) and a 10% federal tax penalty if you are under age 59½ at the time of the withdrawal!

Of course, there’s a simple way to avoid these taxes—just choose to transfer or roll the assets directly into another IRA or plan. You won’t have to worry about the 60-day requirement, and you won’t pay any current income tax if you don’t take control of the money!


Note: For indirect rollovers to be tax-free, additional restrictions and limitations may apply. You should consult with your tax advisor regarding your individual situation.