Blog Posts, Investment Planning

When Does My Retirement Account Get Taxed?

Are Rollovers Taxed?

Direct rollovers do not create a taxable event. A direct rollover occurs when your old plan administrator makes a direct payment to your new IRA or retirement plan.

An indirect rollover occurs when the account balance is paid to you and you must deposit the balance in an IRA or new retirement account within 60 days. Typically, the employer withholds 20% of the account balance in the indirect rollover process. If the total balance is deposited in the new IRA or retirement plan, the rollover will not be taxable and the 20% withheld will be returned in the form of a tax credit.

Are you looking to learn more about rollovers? Please visit the IRS web page on Retirement Account Rollovers.

Are Distributions Taxed?

Typically, distributions from IRAs, 401(k)s, and other pretax retirement accounts are taxed as ordinary income, unless the distribution meets an IRS exception. If the distribution does not meet an exception, it is taxable in the year the distribution is made. Additionally, taking distributions from IRAs prior to age 59 ½ results in an additional 10% tax penalty. For more information regarding IRS exceptions, please visit the IRS website.

To learn more about how we can help you consolidate accounts, please contact us.

This article was written by Shoreline Financial Advisors. To learn more about us, please visit our website.

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