Conduit IRA

Rollover IRA

An IRA to which one has transferred funds from an employer-sponsored qualified retirement account. This usually occurs when an account holder takes a new job or otherwise wishes to take advantage of the tax benefits an IRA offers over, say, a 401(k). Most IRA programs only allow one rollover per year; with a Roth IRA, there is an income limit beyond which a rollover is not allowed. An IRA rollover may be accomplished through a direct transfer or by check; however, a check transfer brings a 20% withholding charge, so account holders are advised to make direct transfers. It is less commonly called a conduit IRA.

Conduit IRA.

A conduit IRA is another name for a rollover IRA, which you establish with money you roll over from a 401(k), 403(b), or other retirement savings plan.

Assets in a conduit IRA continue to be tax deferred until they are withdrawn and may be transferred into a new employer's plan if the plan allows transfers.

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A conversion of a Simplified Employee Pension IRA, a simple IRA or a conduit IRA can be recharacterized back into the pre-conversion form.
The EGTRRA significantly eased the rules on rollovers of retirement savings from one type of tax-favored retirement fund to another, by removing barriers that either prohibited specific types of rollovers or required the use of a conduit IRA to accomplish them.
If the amounts in the conduit IRA are attributable solely to rollovers from qualified plans, a distribution from that conduit IRA may be rolled over into another qualified plan.
Thus, to preserve capital gains and income averaging treatment for a qualified plan distribution that is rolled over, the rollover would have to be made to a conduit IRA as under current law, and then rolled back into a qualified plan.
Previously, a conduit IRA was needed to hold amounts between employer plans, keeping the funds separate from contributions made by individuals.
A Conduit IRA serves as a holding tank for retirement assets until they can be invested in a retirement plan with the same provisions or features.
A conduit IRA converted to a Roth IRA and recharacterized as a traditional IRA retains its status as a conduit IRA.
The proposed regulation would also extend these protections to rollover contributions that were not direct rollovers from a qualified plan; for example, such protections would apply to contributions from conduit IRAs or to checks issued to the participant.