Rollover IRA Taxes
October 16th, 2008
Below are frequently asked questions and rules on Rollover IRA taxes. If you rollover a qualified retirement plan into a traditional IRA, then you won’t have to worry about paying Rollover IRA taxes. However, there are some situations when you have to pay Rollover IRA taxes.
When do I have to pay Rollover IRA taxes?
As a rule of thumb, you will have to pay Rollover IRA taxes when you appear to the IRS to withdraw money from your retirement account or an IRA account. However, when transferring assets between retirement plans, most people do a direct rollover from trustee to trustee. A rollover of assets from one qualified retirement plan such as a 401k to another qualified retirement plan such as a traditional IRA or a SEP IRA will not require you to pay any Rollover IRA taxes.
If you rollover assets from a qualified retirement plan to a Roth IRA, however, you may have to pay Rollover IRA taxes on only the assets that you have not paid taxes on. In a retirement account such as a 401k, there could be pretax assets and after tax assets mixed together so it is important that you can keep track of them and know what you have paid taxes on. You will need to pay taxes on the portion of the rollover assets that you have not paid taxes on.
How to pay Rollover IRA taxes?
For most people, to rollover an IRA, all they have to do is sign some forms and sit back and relax. However, when you know that you have some pretax assets and aftertax assets to rollover, you cannot sit back and let the financial institution take care of your rollover. Most financial institutions do not offer tax advice, you will be referred to a tax advisor or a tax attorney for advice on paying Rollover IRA taxes.
If you have kept good records and know that you owe the IRS some Rollover IRA taxes, then you will just have to declare them on your tax return and pay the taxes when you file your tax return at the end of the year. If you owe the IRA some Rollover IRA taxes, you should make sure that you pay them properly because financial institutions will report to the IRS any rollover amounts and the IRS will find out about your rollover soon.
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