A rollover agreement is a legal document that allows an individual to defer the payment of taxes on funds they receive from a retirement account. This type of agreement is typically used when an individual decides to roll over funds from one retirement account to another, such as from a traditional IRA to a Roth IRA.
Under normal circumstances, when an individual takes a distribution from their retirement account, they are subject to income tax on the amount they receive. However, a rollover agreement allows the individual to defer this tax liability by transferring the funds directly from one account to another.
To initiate a rollover agreement, the individual must complete the proper paperwork and ensure that the transfer is completed within 60 days of taking the distribution. If the transfer is not completed within this time frame, the individual may be subject to both income tax and penalties.
It is important to note that not all retirement accounts are eligible for rollover agreements. For example, funds from a defined benefit pension plan cannot be rolled over into an IRA or other retirement account.
While rollover agreements can be a useful tool for managing retirement funds and minimizing tax liability, it is important to carefully consider the potential implications before entering into such an agreement. Consulting with a financial advisor or tax professional can help ensure that the rollover agreement is structured in a way that best meets the individual`s needs and goals.
In conclusion, a rollover agreement is a legal document that allows an individual to defer tax liability on retirement account funds by transferring them directly from one account to another. While this can be a useful tool for managing retirement funds, it is important to carefully consider the potential implications and seek guidance from a financial or tax professional.