Automatic Rollover

DEFINITION of 'Automatic Rollover'

1. The transfer of qualified retirement plan distributions into an individual retirement account with no action required by the account holder.


2. The reinvestment of a certificate of deposit's interest and principle upon maturity with no action required by the account holder. When a CD matures, the certificate holder may have a short window during which to move the proceeds to another account. If they do nothing, the financial institution automatically reinvests the proceeds into a new CD with the same maturity as the original CD.

BREAKING DOWN 'Automatic Rollover'

1. Internal Revenue Service regulations enacted in 2001 as part of the Economic Growth and Tax Relief Reconciliation Act require plan sponsors of most qualified defined contribution and defined benefit plans, section 457 plans and 403(b) plans with an automatic cash-out provision to automatically place certain mandatory distributions into an IRA. If the plan holder wants something different to happen, they can choose a cash distribution or a rollover to a specific retirement account. The regulations became effective in 2005 and apply to mandatory distributions of more than $1,000 that are eligible for rollover and subject to federal income tax withholding.


2. Automatic rollover, also called "automatic renewal," can simplify the reinvestment process for CD holders. The drawbacks are that the CD holder might prefer to put the money into a different investment, and if they do not act during the short time before the automatic rollover kicks in, there will be a penalty to cash out the new CD early.

RELATED TERMS
  1. Rollover

    A rollover is when you do the following: 1. Reinvest funds from ...
  2. Zero-Coupon Certificate Of Deposit ...

    A certificate of deposit (CD) that is purchased at a largely ...
  3. Bull CD

    A certificate of deposit whose interest rate fluctuates in direct ...
  4. Bear CD

    A certificate of deposit whose interest rate fluctuates in inverse ...
  5. Rollover IRA

    A special type of traditional individual retirement account into ...
  6. Automatic Reinvestment Plan

    An investment program in which capital gains or other income ...
Related Articles
  1. Retirement

    Wealth-Building IRA Rollovers

    Rollovers allow your tax-deferred retirement assets to grow, even when the world around you is changing.
  2. Retirement

    What Happens in a Rollover?

    In the retirement savings realm, rollover refers to transferring the holdings in one retirement account into another.
  3. Personal Finance

    Are CDs Good Protection For The Bear Market?

    Certificates of deposit promise stable income in any market, but do they deliver?
  4. Retirement

    Best Ways to Roll Over Your 401(k)

    When you leave a job, you have some decisions to make about what to do with your 401(k). Here are some choices.
  5. Retirement

    Business Owners: Rules For Qualified Retirement Plans

    Business owners need to take note of how they handle qualified-plan distributions to former employees.
  6. Retirement

    Avoid Taxes on IRA Rollovers

    For years, IRA owners have been allowed to roll over their money from one IRA to another once a year without penalty, for each IRA account they had. A tax court ruling in January 2014 has brought ...
  7. Trading

    Callable CDs: Check The Fine Print

    These offer higher returns than regular certificates of deposit, but there's a catch.
  8. Retirement

    No Need To Rush End-Of-Career Retirement Planning

    Your retirement is fast approaching, but your retirement plan needn't change as quickly.
  9. Retirement

    Avoid the Most Common IRA Rollover Mistakes

    Avoid paying excess taxes by learning some simple transfer rules.
  10. Retirement

    Tips For Moving Retirement Plan Assets

    Moving assets is common when changing jobs or retiring, but you have to do this carefully to avoid penalties.
RELATED FAQS
  1. How are yields taxed on a certificate of deposit (CD)?

    Learn how interest earned on a certificate of deposit is taxed and how this may reduce the total return of an investment ... Read Answer >>
  2. Can certificates of deposit (CDs) lose value?

    CDs are FDIC insured, so they do not lose face value, though broker-issued CD accounts do carry risks. Read Answer >>
  3. I would like to invest in either an IRA or CD. Any recommendations?

    I'm getting ready to receive a WC settlement of approx. $125k. I am 52 and disabled but I can't collect on any disability ... Read Answer >>
  4. What are the implications of my client's status?

    A tax client of mine claims to have rolled over an IRA distribution indirectly. A year later, the IRS claimed it to ... Read Answer >>
  5. What are the typical durations for a certificate of deposit?

    Investing in a certificate of deposit offers individuals the ability to earn interest on idle funds with less risk than stock ... Read Answer >>
  6. Are Certificates of Deposit (CDs) Taxable?

    Learn the tax consequences on certificates of deposit, how they are reported and how penalties on early withdrawals can affect ... Read Answer >>
Hot Definitions
  1. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  2. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  3. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  4. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  6. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
Trading Center