Rollover

What Is Rollover?

Rollover refers to several activities, including the process of reinvesting mature security into a new issue of the same or similar security, the transfer of foreign currency exchange position to the next delivery date (thereby incurring a charge), and the moving of funds or holdings from one retirement account into another without having to pay taxes.

Deeper Definition

The case of a rollover is such that if a bond reaches maturity or is called by the issuer, the bondholder gets the money from the bond and may roll it over or buy another similar bond where the new rates apply.

The implication of rolling over a retirement account for an investor is that one of two(2) options is possible; distribution through a direct rollover or a 60-day rollover.

The direct rollover implies that the first brokerage company transfers directly to the second brokerage firm. In contrast, a 60-day rollover makes provisions for the first brokerage company to remit the money to the investor, who then has 60 days to secure reinvestment for the money to avoid taxes.

Foreign exchange trading also captures the concept of a rollover to mean interest paid to or charged against currency traders with open positions at 5 p.m Eastern Standard Time on days where the market is available with the fee being determined by the difference in rates between the two(2) currencies.

Rollover Example

If Susan has $100,000 in a 401(k) and gets a job offer with a different firm, whose bosses use another brokerage firm to manage their 401(k) plans.

•   If she indicates interest in rolling over her money to her current brokerage firm, her account is liquidated, and she is subsequently issued a check.
•   She immediately transfers the money into a new account, and since she deposited the money from her old retirement to a new retirement account within 60 days, she will not be taxed.

Mark purchases a government bond at the rate of $1000 with interest pegged at 2.5 percent. The loan’s maturity causes him to receive both principal and interest, and he then goes on to buy a new government bond. Assuming the interest rate on the bonds has increased to 4%, Mark’s interest to be earned will be significantly higher.