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Can I roll a retirement plan distribution into an IRA?

If you're asking this question, you probably have a 401(k) or other retirement plan through a former employer. The short answer is yes — most retirement plans allow you to roll your plan funds over into an IRA after you've left your employer's service. However, there is more than one way to do a rollover, and how you do it can be critical.

In most cases, your best strategy is to do a direct rollover. This is a direct transfer of funds from your employer-sponsored plan to your IRA. The administrator of your employer-sponsored plan may send the check right to the trustee of the IRA you have selected. That way, the money never passes through your hands. Alternatively, the plan administrator may give the check to you to deliver to the IRA trustee. This also qualifies as a direct rollover as long as the check isn't made payable to you. Instead, it should be made payable to the IRA trustee for your benefit. A direct rollover will avoid tax consequences and penalties.

You can also do an indirect rollover, but it's rarely a good idea. Here, the check is made payable to you. When you receive the check, you cash it and deposit the funds in the new IRA within 60 days. The big drawback: Before releasing your plan funds to you, the plan administrator is required to withhold 20% of the taxable amount for federal income tax. To make sure you deposit the correct amount, you must replace this 20% out of your own pocket. However, if you properly follow all the IRS rules for rollovers, you will avoid tax consequences and can get back the amount withheld for taxes when you file your annual income tax return.

You can roll your distribution into either a traditional IRA or Roth IRA. If you roll the funds over into a Roth IRA (often called a "conversion") you'll include the taxable portion of the distribution in your taxable income in the year you roll the funds over. (A distribution from your retirement plan's Roth account can only be rolled over into a Roth IRA.)

You may not be allowed to roll over certain types of retirement plan distributions into an IRA. Further, when considering a rollover, to either an IRA or to another employer's retirement plan, you should consider carefully the investment options, fees and expenses, services, ability to make penalty-free withdrawals, degree of creditor protection, and distribution requirements associated with each option. Also remember that you may be able to leave the funds in your current plan (if allowed), roll the funds into a new employer's plan (if allowed), or take a cash distribution, which would result in an immediate income tax obligation and a possible 10% penalty tax on the taxable portion of the distribution. Consult a tax professional for details.

There are no warranties implied.

White Aspen Capital is a registered investment adviser located in Los Angeles, California. White Aspen Capital may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Whiteaspencapital.com is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of White Aspen Capital web site on the Internet should not be construed by any consumer and/or prospective client as White Aspen Capital solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by White Aspen Capital with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of White Aspen Capital, please contact the state securities regulators for those states in which White Aspen Capital maintains a registration filing. A copy of White Aspen Capital’s current written disclosure statement discussing White Aspen Capital’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from White Aspen Capital upon written request.

This newsletter and information are provided for guidance and information purposes only. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy. This website and information are not intended to provide investment, tax, or legal advice.

White Aspen Capital 350 S. Grand Ave. Suite 1800 Los Angeles, CA 90071 310-498-0620 info@whiteaspencapital.com www.whiteaspencapital.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2021

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