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Can I roll a retirement plan distribution into an IRA?

Answer:

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 percent of the taxable amount for federal income tax. To make sure you deposit the correct amount, you must replace this 20 percent 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. Consult a tax professional for details.

Information provided has been prepared from sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is not intended for solicitation or trading purposes. Please consult your tax and legal advisors regarding your individual situation. Neither AXA Equitable nor any of the data provided by AXA Equitable or its content providers, such as Broadridge Investor Communication Solutions, Inc., shall be liable for any errors or delays in the content, or for the actions taken in reliance therein. By accessing the AXA Equitable website, a user agrees to abide by the terms and conditions of the site including not redistributing the information found therein.

Please be advised that this materials is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transactions(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor.

AXA Equitable Life Insurance Company (NY, NY). Securities are offered through AXA Advisors, LLC, NY, NY 212-314-4600 (member FINRA / SIPC). AXA Equitable and AXA Advisors are affiliated companies, do not provide legal or tax advice and are not affiliated with Broadridge Investor Communication Solutions, Inc.

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