When rolling money over from 401(k) to an IRA or in contemplating other types of rollovers, there are many mistakes that are made. In my professional career, I believe that it is better to learn from other’s mistakes rather than making them yourself.

With that in mind, we turned to Ed Slott, who i feel is a top expert in this area. To follow is a list published by Ed Slott on the “Top 10 IRA Rollover Mistakes”. (a)


1) IRA-to-IRA Rollovers and Roth IRA-to-Roth IRA Rollovers:


  • Using 60-day IRA Rollovers instead of using transfer to move IRA funds
  • New stricter IRA rollover rules for 2015 (effective January 1, 2015)
  • Once-per-year is for all IRAs and Roth IRAs
  • IRS has no authority to correct these mistakes
  • New client rollover mistakes – not asking about prior rollovers
  • Not knowing the exceptions to the once-per-year IRA rollover rule

2. Non-Spouse Rollovers are NOT Permitted:


  • Non-Spouse beneficiary cannot do a rollover
  • Taking a lump-sum distribution
  • Putting a decendent’s IRA funds into your own IRA
  • Paying out the entire IRA to a trust beneficiary

3. Spousal Rollovers


  • Spousal rollover before age 59 1/2
  • Forgetting to do the spousal rollover at age 59 1/2
  • Not naming a successor beneficiary of the Inherited IRA

4. 401(k) Rollovers to IRAs


  • Not reviewing all 6 options (IRA rollover is not the only option)
  • Receivng a distribution personally and being suject to 20% withholding
  • Not knowing the credit protection of IRAs in your state
  • Not frist asking about the NUA (Net Unrealized Appreciation) tax break
  • Rolling over highly appreciated company stock to an IRA
  • Not allocating the after-tax portion (basis) to a Roth IRA tax free
  • Doing an in-plan converstion before estimating the tax effect

5. After-Tax Rollovers From Plans to IRAs and Roth IRAs


  • Not being aware of the new allocation rules that allow the tax-free Roth conversion of after-tax plan funds
  • Failing to allocate pre-tax and after-tax amounts to the correct account
  • Taking only after-tax funds out for tax-free Roth conversions (Generally won’t work)
  • Rolling over all funds to a Traditional IRA (rules do not apply to IRA distributions)
  • Choosing to receive all funds personally

6. Roth Conversions (Technically IRA-to-Roth Rollovers)


  • Not advising on the income impact of a Roth conversion (Other taxes may be triggered or tax benefits lost)
  • Failing to keep track of October 15 recharacterizaion deadline
  • RMDs (required minimum distributions) cannot be converted
  • Rolling over all funds to a Traditional IRA (Rules do not apply to IRA distributions)
  • Choosing to receive all funds personally
  • SIMPLE IRA cannot be converted until after 2 years
  • Inherited IRAs cannot be converted, but inherited company plan funds can
  • Not opting out of the 10% tax witholding (You lose the recharacterization of funds not converted)
  • Failing to notify a CPA about a recharacterization (That recharacterization can occur in the next tax year)

7. In-Plan Roth Rollovers (401(k) to Roth 401(k) Conversions)


  • Not asking if in-plan conversions are available in the plan
  • Not estimating the taxes due on the conversion
  • Not knowing that the in-plan conversion CANNOT be recharacterized
  • Not checking first if a Roth IRA conversion is available

8. Rollovers to Any Other Retirement Account (60-Day Rule)


  • Losing track of the the 60-day deadline
  • Not knowing about the 20% mandatory withholding from plans
  • Rolling over after 60 days without an IRS Ruling
  • Depositing the funds into a non-IRA account
  • Choosing a 60-day rollover instead of a transfer

9. Rollovers in Divorce (From Plans Only) to Ex-Spouse as an Alternate Payee


  • Rolling over all of the QDRO (Qualified Domestic Relations Order) distribution to an IRA na dthen taking an IRA distribution before at 59 1/2
  • Remember! A QDRO distribution is a 10% penalty exception but only on distributions from the plans!
  • Not knowing that QDROs do not apply to IRAs

10. Rollovers from IRAs back to Plans


  • Rolling over basis into the company plan
  • The pro-rata rule exception
  • Only pre-tax funds can be rolled into the plan
  • Failing to convert remaining IRA basis to a Roth IRA
  • Not asking if your plan accepts IRA rollovers
  • Not first checking plan restrictions on accessing the rollover funds (Funds are not subject to plan rules)


Note: (a) Ed Slott and Company, LLC prepared this list and more information can be found at www.irahelp.com


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