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. Retirement

    Wealth-Building IRA Rollovers

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

    Save Smart With A CD Ladder

    A CD Ladder allows you to stagger your investments and take advantage of higher interest rates.
  5. Investing

    How To Earn The Most From CDs When Interest Rates Are Low

    Certificates of deposit might not seem like a good place to keep your money when interest rates are low, but they do offer security and stability. And with laddering and studying promotional ...
  6. Financial Advisor

    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.
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. 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 >>
Hot Definitions
  1. Book Value

    1. The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated ...
  2. Dividend Yield

    A financial ratio that shows how much a company pays out in dividends each year relative to its share price.
  3. Fixed-Income Security

    An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. ...
  4. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  5. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  6. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
Trading Center