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

    What Happens in a Rollover?

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

    Are CDs Good Protection For The Bear Market?

    Certificates of deposit promise stable income in any market, but do they deliver?
  3. 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.
  4. Trading

    Callable CDs: Check The Fine Print

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

    Avoid the Most Common IRA Rollover Mistakes

    Avoid paying excess taxes by learning some simple transfer rules.
  6. Markets

    Getting Certificates of Deposit (CDs) in Emerging Markets: Risks and Rewards

    Learn about the risks and rewards associated with investing in a certificate of deposit (CD) offered by an emerging market and what to consider before buying.
  7. Personal Finance

    How To Create A Laddered CD Portfolio

    Laddered certificates of deposit offer safe capital and predictable cash flow, while bringing simplicity to your portfolio.
  8. Personal Finance

    Certificate of Deposit (CD)

    A certificate of deposit, or CD, is a common financial product sold by banks, thrift organizations and credit unions. This type of product is often called a time deposit. CDs are insured up to ...
  9. Retirement

    Why Rollover Your Retirement Assets into an IRA?

    If you're in the workplace now, chances are you'll ask yourself this question eventually: 'Should I rollover to an IRA?' Here's a guide.
  10. Retirement

    401(k) Rollovers: The Tax Implications

    The tax rules for 401(k) rollovers can be simple or more complex, depending on which path you take.
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 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 >>
  5. 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 >>
  6. What is a 401(k) rollover?

    Find out what a 401(k) rollover is, when you might want to roll over a 401(k) and whether a direct or indirect rollover is ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center