Roll over your retirement funds on time, or else!

Retirement funds can be moved from one retirement account to another with no tax impact, so long as the taxpayer follows a few simple rules. One of the most important rules is that the funds must land in the new account within 60 days of being taken out of the old account.

Seems simple, right? Well believe it or not, plenty of taxpayers miss that deadline. Some of them are just careless, while others try to use the money for the 60 days, but run out of time and miss the deadline. If you miss the deadline, it's expensive because the Internal Revenue Service then treats the money as a distribution of retirement funds. If you're not yet retirement age, you'll pay regular income tax on the money plus a 10% penalty. Between federal and state taxes and penalties, taxpayers usually lose about 50% of their retirement funds if they do an early distribution.

The IRS used to be pretty forgiving, and allowed taxpayers exceptions to the 60 day rule. But word is that the IRS isn't going to be so forgiving anymore, and taxpayers shouldn't count on receiving the benefit of the doubt. The IRS rules regarding retirement accounts are meant to discourage early withdrawals from the accounts via painful penalties. The government thinks we need an incentive to keep our retirement funds intact, and they're probably right.

If you're moving your retirement funds from one account to another, the best way is to have the financial institution transfer the money directly to the new financial institution. Don't tempt fate by letting the money fall into your own hands. If you transfer the money directly, you don't risk the tax problems.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

7 Smart Ways to Invest Your Tax Refund

You can maximize your tax refund in several ways — from paying off high-interest debt to investing in a business or saving for retirement. One or more of these options could be the perfect fit for you.

Read More

Brought to you by TurboTax.com

Video: Deducting Charitable Contributions

You can deduct most or all of your charitable contributions. Just be sure to follow the IRS's hard-and-fast rules.

Read More

Brought to you by TurboTax.com

How to Start Tax Planning

A little tax planning can be a big help at tax time each year.

Read More

Brought to you by TurboTax.com

Tax Tips for the Legally Disabled

Several tax breaks are available for people living with disabilities. These tax breaks aren't always obvious, though. You have to know where to look for them.

Read More

Brought to you by TurboTax.com
Read Full Story