Can I Add My Retirement Income to My Rollover IRA?

by Vicki A. Benge, studioD

Retirement income in qualified plans including 401(k) accounts, 403(b) accounts, government employee 457(b) accounts and various other IRAs can be rolled over into another IRA account. Once the rollover is completed, federal law generally permits the taxpayer to continue making contributions up to the established limits, regardless of the source of the income.

Contribution Limits

Based on factors such as the account holder’s age and income level, certain types of retirement accounts are subject to annual contribution limits. It is important to check with your plan administrator to be aware of what rules apply to the IRA to which you intend to add funds, as traditional and Roth IRAs are treated differently under current tax law.

Time Limits

A direct rollover involves moving funds directly from one account to another. The plan administrator oversees the transfer. When a taxpayer takes the initiative and withdraws funds from an account to execute a rollover to another IRA plan, the IRS requires that the transaction be completed within 60 days. Not meeting the deadline can result in penalties and taxes on the transferred amounts. This time limit includes retirement income in the form of a pension or employer-sponsored plan such as a 401(k). Per federal guidelines, rollovers from one traditional IRA to another are limited to one per year. However, during the 60-day period, multiple accounts can be moved into the designated IRA.

Moving Funds

If you are no longer employed by the company where you have a retirement account that you want to move, contact your former employer or the plan administrator and request a distribution directly to your designated IRA. When you initiate the transfer on your own, federal tax regulations require that 20 percent of the total amount be withheld for federal income taxes. Although you should later receive the funds in the form of an income tax refund, you must make up the 20 percent deficit in the meantime to finalize the rollover or the shortfall is considered a distribution. If you are below the minimum age for withdrawal, which is currently 59 1/2, you will be subject to taxation on the shortfall and penalties may apply.

Age Restrictions

When you reach age 70 1/2, the IRS requires you to take annual distributions from your traditional IRA or 401(k) account. Once you've reached this age, retirement income can no longer be rolled over to an existing IRA or another new IRA. You can, however, continue to contribute retirement income to an IRA until you reach that age.

About the Author

Vicki A Benge began writing professionally in 1984 as a newspaper reporter. A small-business owner since 1999, Benge has worked as a licensed insurance agent and has more than 20 years experience in income tax preparation for businesses and individuals. Her business and finance articles can be found on the websites of "The Arizona Republic," "Houston Chronicle," The Motley Fool, "San Francisco Chronicle," and Zacks, among others.

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