Advantage #1
Avoid paying current taxes - The portion of your distribution that you put into an IRA rollover isn't subject to income taxes until you withdraw it. You don't have to begin taking withdrawals until age 70½, at which time you may be in a lower tax bracket.
Advantage #2
Keep your distribution growing tax deferred - All of the dividends, interest and capital gains you earn in your IRA rollover are 100% free from federal income tax until you withdraw them — which means your money has greater growth potential than it would in a comparable taxable investment.
Advantage #3
Avoid tax penalty - If you are under age 59½ and take your distribution in cash, your distribution may be subject to a 10% early withdrawal penalty in addition to ordinary income taxes. You can avoid this penalty by putting your distribution in an IRA rollover.
Advantage #4
The "conduit" IRA - You may use your IRA rollover account as a link between two qualified retirement plans. If you establish an IRA rollover account and later move to a job that offers a qualified retirement plan, you may be able to move these retirement assets into the new plan, depending on its rules. Possible additional tax benefits available under the new qualified plan may make this option open, however, it is very important to keep your rollover money separate from any regular annual IRA contributions or you may not be able to use this "conduit" feature.
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