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. Rollover

    A rollover is when you do the following: 1. Reinvest funds from ...
  6. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
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. Managing Wealth

    Save Smart With A CD Ladder

    A CD Ladder allows you to stagger your investments and take advantage of higher interest rates.
  3. 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 ...
  4. 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.
  5. 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.
  6. Retirement

    Business Owners: Rules For Qualified Retirement Plans

    Business owners need to take note of how they handle qualified-plan distributions to former employees.
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 >>
  3. 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. Current Assets

    A balance sheet account that represents the value of all assets that can reasonably expected to be converted into cash within ...
  2. Tax Liability

    The total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable ...
  3. Preferred Stock

    A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares ...
  4. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  5. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  6. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
Trading Center