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February 17, 2009

Indirect rollover

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Definition

A two part transaction, where Part-1 is a distribution and Part 2 is a rollover contribution. The distribution is typically paid to the participant. The rollover contribution must be made to an eligible retirement plan within 60-days of the participant receiving the distribution.

Referring Cite

IRC § Treas. Reg. §1.401(a)(31)-1, IRS instructions for filing Forms 1099-R and 5498

Additional Helpful Information

  • Rollover eligible amounts that are processed as Indirect rollovers are subject to withholding.
  • If the distribution is being made from a qualified plan, 403(b) or 457(b) plan, and the amount is rollover eligible, the payor must withhold 20% for federal taxes.
  • In order to avoid the 20% withholding, the participant must have the transaction processed as a direct rollover
  • The distribution side of a direct rollover is reported on IRS Form 1099-R. If the receiving plan is an IRA, the rollover contribution ( receiving) side it is reported on IRS Form 5498

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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