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. Zero-Coupon Certificate Of Deposit ...

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

    A certificate of deposit whose interest rate fluctuates in direct ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. ...
  4. Bear CD

    A certificate of deposit whose interest rate fluctuates in inverse ...
  5. Automatic Reinvestment Plan

    An investment program in which capital gains or other income ...
  6. Rollover IRA

    A special type of traditional individual retirement account into ...
Related Articles
  1. Investing

    Are CDs Good Protection For The Bear Market?

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

    Don't Miss out on Retirement Rollover Benefits

    Don't let the fear of having to report a retirement rollover keep you from benefitting from it.
  4. Investing

    IRS Cuts Some Savers a Break on IRA/401(k) Rollovers

    The Internal Revenue Service is providing some relief to certain taxpayers who may have missed the 60-day window allowed for IRA and 401(k) rollovers.
  5. Retirement

    Avoid the Most Common IRA Rollover Mistakes

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

    Transfer Retirement Savings When You Change Jobs

    Half of Americans lose their nest eggs when they switch careers. Learn why you should avoid this trap.
  8. Personal Finance

    The 7 Best Places to Put Your Savings

    You work hard to put your money away for the future, but where should you keep it?
  9. Managing Wealth

    What Is A CD Ladder?

    Find out how a CD ladder can protect you from interest rate risk.
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 >>
Hot Definitions
  1. Aggregate Demand

    The total amount of goods and services demanded in the economy at a given overall price level and in a given time period.
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  3. Blue Chip

    A blue chip is a nationally recognized, well-established, and financially sound company.
  4. Payback Period

    The length of time required to recover the cost of an investment. The payback period of a given investment or project is ...
  5. Collateral Value

    The estimated fair market value of an asset that is being used as loan collateral. Collateral value is determined by appraisal ...
  6. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
Trading Center