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Conduit IRAs

As its name suggests, a conduit IRA is essentially a medium through which a transfer may be made from one qualified plan to another. More simply, it is an individual retirement arrangement serving as a holding account. If properly structured, money is rolled over tax-free between plans with a temporary layover in the conduit IRA. However, the new qualified plan is not required to accept transfers and must provide for the acceptance of the amounts.

Tip

Tip

Remember that unless a direct rollover is made, it is subject to a mandatory 20 percent withholding. As a result, the taxpayer has to make up the funds missing from the conduit IRA within 60 days or pay taxes and penalties associated with making an early withdrawal.

A conduit IRA may not have assets other than those previously distributed from an individual's qualified plan. So, conduit IRA assets cannot be commingled with the assets of a traditional IRA or Roth IRA. If commingling does occur, a rollover to a new qualified plan will not occur without incurring tax.

An eligible rollover distribution from an IRA may be rolled over into a qualified employer plan, 403(b) annuity, or 457 government plan. This applies whether or not the distributing IRA qualifies as a conduit IRA. Therefore, conduit IRAs may still be around, but their usefulness is questionable.


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