A Rollover IRA, also referred to as a Conduit IRA, is a type of retirement account designed to hold proceeds received from an employer-sponsored qualified plan or 403b plan, which the investor may choose in the future to roll back to another employer's retirement plan. In other words, the Rollover account is used as a "holding account" between employer retirement plans.

When an individual leaves an employer who has sponsored a qualified plan or a 403b plan, whether due to retirement, termination, or a career change, they generally have 4 options regarding what to do with their retirement plan:

• Leave it in the plan if the employer allows
• Move it to a new employer's retirement plan
• Receive a taxable distribution, or
• Roll it over to an IRA, which will be our focus here.

The term "rollover" as it pertains to a Rollover IRA is often confused with the process of moving money from one IRA custodian to another IRA as a 60-day rollover or as a transfer of assets. A 60-day rollover is a procedure for an investor to remove money from an IRA account, and within 60 days, either replace it in the same IRA or reinvest it in an IRA with another financial institution to avoid taxes or penalty. While not taxable, this type of transaction is reportable on the individual's tax return, and can only be performed once every twelve months. A transfer of assets from one trustee directly to another trustee is not reportable, and because it is not considered a rollover, there is no restriction on how often such a transaction may take place.

Eligible Rollover Distributions
Not all amounts received from qualified retirement plans or 403b plans are eligible for rollover treatment. Amounts that cannot be rolled over include:

• Minimum required distributions
• After-tax employee contributions
• Hardship distributions
• Any of a series of substantially equal periodic payments paid at least once a year over an individual's life expectancy (or a joint life expectancy with their beneficiary), or over a period of ten years or more

Amounts that are eligible for rollover treatment are subject to 20% withholding, unless the amount is issued directly (or made payable) to the receiving IRA custodian. If an employee receives a distribution less the 20% withholding, they can still deposit it in a Rollover IRA and may choose to make up the 20% on their own to avoid being taxed or penalized on that amount. They can then claim the amount withheld as a credit on their tax return for that year. In this situation, the rollover must be completed within 60 days. The amounts listed above as ineligible for rollover treatment are not subject to the 20% withholding rule.

Commingling of IRA Funds
If an investor rolls their qualified retirement plan or 403b plan assets into an IRA, the funds generally must be kept in a separate account from their regular IRA contributions. Combining rollover money with regular IRA contributions is considered "commingling," which disqualifies the investor from rolling the original plan assets to a new employer's plan in the future. There is no deadline for rolling the funds back to an employer's plan, and it is an option that might not be exercised at all. Some investors may simply wish to have this option available to them, perhaps to take advantage of a future employer-sponsored plan's loan provision, special payout options, or for greater protection from creditors than they might have with an IRA. However, other investors are not concerned with the commingling issue, either because they are nearing retirement age or do not anticipate working for another employer that would offer a similar plan. IRA's typically offer substantially more investment choices than employer plans do, therefore an investor not concerned about loan provisions or creditor protection may choose to keep their rollover money in an IRA rather than transfer it to another employer's plan. Also, employers are not required to accept rollovers from Conduit IRA's into their company's retirement plan, so this may not always be an option to an individual changing jobs.

A Rollover IRA can be converted to a Roth IRA if the taxpayer is eligible to do so; however, such a transaction would be fully taxable and would also disallow future rollover back to an employer plan. However, a rollover from a qualified plan or 403b plan cannot be deposited directly into a Roth IRA; it must first be rolled over to a traditional IRA and then can be converted to a Roth account.

Another point to consider is rollovers to an IRA from different types of plans. For example, an individual who has had a 401k plan as well as a 403b plan from a non-profit employer should keep those assets in separate IRA's to avoid commingling. Similarly, money that originated in a 401k plan cannot be rolled over to an IRA, and then later be rolled into a 403b plan. Pending legislation may change this issue and make different types of retirement plans more portable between employers, including non-qualified plans such as SEP-IRA's and SIMPLE plans.