An IRA rollover can be a simple transaction to complete, but transferring the fund, which is sometimes referred to as a "direct roll-over", is even simpler.  The terminology used by custodial companies and the IRS can be confusing.  So, here in plain English are some of the things that you need to know about a rollover IRA.

The Basic Rules

When you take a "true" IRA rollover, you are like a middle man.  You close one account.  All of the assets are liquidated and a check is written.  You have 60 days to find a new IRS qualified account and deposit that check into it.  There is usually a small set-up fee for the new account.

A lot of the preliminary work can be done on-line.  You can search for a new custodial company. Compare the fees that they charge and even sign up.  Deposits can be made electronically or by mail. 

If something comes up and you cannot meet the 60 day deadline, your rollover IRA could lose its tax sheltered status, which would cause you to incur unnecessary taxes at the end of the year.  You can apply for an extension, but you must be able to show that you made every attempt to find and set up a new account.

The Types of Accounts

In addition to the traditional rollover IRA, which is usually invested in the stock market, there are IRA-CDs.  Those are bank certificates of deposit that are sheltered from annual taxes on interest earned.  Practically every bank offers them, although the interest rates are not that high.

You could also consider using your IRA rollover to convert your fund to a Roth type account, if you are within the income limits for that type of account.  Roth contributions are taxed as regular income, but qualified distributions are never taxed. 

Then, there is the self-directed option, which simply means that you will make investment choices and direct your custodian to buy or sell assets.  Only about 5% of all accounts are truly self-directed.  They are the ones that tend to see the highest annual returns.  In other words, they make more money.

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Investment Options

If it's time to set-up a rollover IRA, it's time to look at how well your investments have been performing to this point.  Is the account earning 3-4% per year...6-8% per year?  Are you losing money?  Is there a way that you could earn more?

It is possible to take an IRA rollover, with a value of $20,000, open a self-directed account and turn that $20,000 into a million dollars in three years.  I've seen people do it.  It takes time and just a little luck, but it can be done.

Something to Think About

If you don't have time and you don't feel too lucky, you can still earn twice what you are currently earning with the right rollover IRA investments.  But, you will have to consider real estate to do it.  If you're currently looking at your IRA rollover check or just expecting one soon, it's time to learn more. If you have two minutes to spare, please feel free to browse through my website.