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Your Bank > Education and Advice > CNB University

Caution: Rollover in Progress

M Mazzochetti
Mark S. Mazzochetti, CISP is Vice President - Retirement Services Officer and can be reached at MMazzochetti@CNBank.com or (585) 419-0670 x50606.

Rolling over a distribution from your employer-sponsored retirement plan account to a traditional individual retirement account (IRA) isn’t difficult. Still, it’s easy to make a mistake that could cost you a chunk of your savings. Here are a few rollover “missteps” to avoid.

A Check Instead of a Transfer

You could handle the rollover yourself. But, if the check is made out to you, you’ll generally receive only 80% of the money in your plan account. The other 20% will be withheld to pay income taxes. You’ll need to come up with the missing funds to complete the transaction.

Instead, request a trustee-to-trustee direct rollover from your retirement account to an IRA set up to receive the funds. Funds won’t be withheld to pay taxes, so your entire account balance will go into the IRA.

Including After-tax Contributions in the Rollover

Have you made both pretax and after-tax contributions to your plan account? If you roll all the funds into an IRA, you won’t be able to take out just your after-tax contributions. Only a portion of each IRA withdrawal will be treated as a nontaxable return of those contributions.

Think about withdrawing after-tax dollars from your account before you roll it over to an IRA. The withdrawal will be tax free, and you’ll be able to use the funds however you wish.

Rolling Over Company Stock into an IRA

Are you holding highly appreciated employer stock in your plan account? If you roll the stock into an IRA, you’ll avoid paying taxes right away, but you could be hit with a large tax bill when you eventually take withdrawals from your IRA. IRA withdrawals don’t qualify for the lower capital gains rates.

It might be better to take the shares and roll over the rest of your funds. You’ll pay income tax, but only on the stock’s cost (generally, its value when added to your account). Then, if you later sell your shares for more than the cost amount, you’ll owe capital gains tax on the difference.

Contact Us

Discuss your rollover options with our Certified IRA Services Professional, Mark Mazzochetti, VP and Retirement Services Officer, before going ahead with a rollover. Contact us at 585-419-0670.

This material is provided for general information purposes only and is not a recommendation or solicitation to buy or sell any particular security, product or service. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Bank & Trust, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.

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