Avoid $20K Penalties When Rollovering | Raleigh News

0:00It's September 12th. This is Raleigh News Today, local news powered by AI. Last year, almost 6 million Americans moved over $680 billion from their work retirement plans into individual retirement accounts. This is a huge amount of money and how you move it really matters. There are two main ways to do this, and one can call some serious headaches if you're not careful. The tricky part comes with what's called an indirect rollover. When you choose this method, the money gets sent to you first, and the IRS automatically takes out 20% for taxes. If you don't get that money into your new IRA within 60 days, the whole amount is considered taxable income, and you could face an extra 10% penalty if you're under 59 and a half years old. Imagine you're rolling over $100,000. With an indirect rollover, you'd only get $80,000 in hand, with 20,000 going to the IRS as a placeholder. To avoid that penalty on the missing $20,000, you'd have to come up with that cash yourself from your own savings and getting that $20,000 back from the IRS

1:05later isn't guaranteed. This whole process is becoming more common as people change jobs more often and retirements speed up. Experts predict that the amount of money moving from workplace plans to IRAs will keep climbing, reaching over a trillion dollar annually in the next decade. It's a big deal because the fees on these accounts can really add up over time, shrinking your retirement savings. The best way to avoid these issues is a direct rollover. With this method, your all plan sends the money straight to your new IRA provider. You never touch the cash, so there's no 20% withholding, no 60-day deadline to worry about, and no risk of accidentally taking a penalty. It's a much smoother path to keeping your retirement funds intact.