@nightglider wrote:
@bada_bing wrote:There are different ways to intrepret the OP's statement. Without knowing the full details, I guessed
that the OP had a cash value in a pension plan that was less than $5K. In a lot of pension plans, they
will allow a lump sum distribution if the amount is less than "X". Often there is no requirement to take
the distriburtion, the money can be left in the plan. For small sums that allow a lump sum, it's almost
always better to take the lump as an untaxed rollover into a qualified retirement plan.
But maybe the OP's situation is different than I guessed. If they are automatically forwarding a check to
the OP, then the clock is ticking on the time the money can be deposited tax free into a retirement account.
I'm pretty sure the limit is 60 days. There also will be additional reporting requirements come tax time to
document the deposit. All in all, it is much simplier to arrange a rollover where the OP never takes possession
of the money, if that is an option.
That's called a transfer, and while it is simpler, it is no longer an option.
The two ways to move retirement funds from one custodian to the other is a rollover or a transfer. With a rollover, a check gets mailed to the owner of the account, and the account holder has 60 days to deposit the funds into a retirement account with another custodian or else the amount is penalized/taxed. With a transfer, the money is sent directly from one custodian to the other, without the account owner touching the money. A rollover can only be done once per year. A transfer can be done as much as you want.
Actually, if you want a definitive definition:
Rollover vs. Transfer
An IRA rollover is the movement of funds between 2 types of retirement plans that may be different, such as from a 401(k) plan to an IRA. Rollovers may be subject to federal income tax unless all requirements are met. Consult your tax advisor regarding frequency of rolling over funds.
An IRA transfer is the movement of funds between the same types of accounts, such as from one Traditional IRA to another Traditional IRA, where there is no distribution to you. The money is transferred directly from one financial institution to another on your behalf and is also known as a trustee-to-trustee or custodial transfer. Transfers can take place as often as you like, and they are not taxable.
More about IRA rollovers
Direct payment rollover
If you choose to receive a direct payment of your funds, 20% of the funds may be withheld for taxes. You can recover the withheld amount if you deposit your assets into an IRA within 60 days. The deposit must be equal to the amount of your distribution, plus the 20% that was withheld. When you fund your Rollover IRA with 100% of your distribution, you will receive a refund for the withheld amount in the form of a tax credit when you file your tax return.
If you do not make up the difference of the withheld amount, the IRS will consider it a distribution and will tax it as income. The amount may also be subject to an additional tax. Please consult your tax advisor.
Direct rollover–easiest
You can avoid the possibility that 20% of your rollover funds will be withheld for taxes by choosing the direct rollover option. This is where you have the funds rolled over directly from your employer’s qualified retirement plan into your IRA.
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