When you’re moving your money from one IRA to another IRA rollover account, you’ll want to take extra precautions to avoid making mistakes that will create an IRA tax burden for you. When handled properly, IRA rollovers can occur without any federal IRA taxes, withholding or penalties. But unfortunately, one small error can destroy this tax-free rollover status. Let’s look at how to protect your money.

How is Your IRA Rollover Handled?

The most common mistake is that, through a lack of understanding of how rollovers are handled or through a communication error, the money is handled in such a way that an IRA tax burden is created.  If a rollover is properly handled as a direct rollover, no tax burden should be created. However, if the transaction is an indirect rollover or it becomes a distribution or withdrawal, IRA rollover taxes and penalties may come into play. (more…)