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Retirement: For Individuals: Rollover IRA

A rollover IRA can help keep your retirement plan on track when you change jobs or retire.

The following are answers to some frequently asked questions about rollover IRAs.

What is a rollover IRA?

A rollover IRA is an Individual Retirement Arrangement. You may "roll over" money from an employer-sponsored retirement plan to this retirement arrangement when you change jobs or retire.

What are the advantages of a rollover IRA?

With a rollover IRA, you:

  • Have the potential to continue growing your retirement plan assets on a tax-deferred basis.
  • May avoid penalties for prematurely withdrawing your retirement funds.
  • Can allocate your retirement dollars to a wide range of investment options within the IRA.
  • Have more opportunities to match your investment choices to your time horizon, risk tolerance, and savings objectives.

What kinds of retirement plans qualify for rollover IRAs?

Rollovers of retirement plan assets are allowed in many qualified retirement plans including 401(k) and thrift savings plans, 403(b)s, and ESOPs.

Ask your Plan Administrator for rollover information.

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What are direct rollovers?

If your retirement plan assets are paid directly to you, the IRS imposes a 20% mandatory withholding on these funds. Depending on your tax bracket, you may owe more or less in taxes than the amount withheld. The distribution may also be subject to a 10% early distribution penalty. A direct rollover from the retirement plan to a rollover IRA can help you avoid this.

A direct rollover is simple. Here is how it works:

  1. Open a rollover IRA.
  2. Contact the Plan Administrator.
  3. Request your retirement plan distribution be directly rolled over to your rollover IRA.
  4. Fill out required forms to complete the rollover.

Your employer will then pay out the distribution directly to your rollover IRA or issue a check to you payable to The Principal®. It's important you deposit this check immediately to your rollover IRA.

Did you know?

Generally, any distribution not rolled over to another qualified retirement plan or IRA within 60 days of receipt of the funds may be subject to income taxes and penalties. You'll also lose your chance to move your money to a rollover IRA.

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While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. For more information about our funds, including their full names, please see the Principal Funds, Inc. prospectus or call Sales Support at 1.800.787.1621.

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