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Chapter 19. Roll, Roll, Roll It Over > Benefits of a Rollover - Pg. 187

Roll, Roll, Roll It Over 187 · Protect your payment from taxes.Neither the federal government nor your state government will tax the lump-sum payment (the total amount you are rolling over) for income taxes at the time of the rollover. · Continue sheltering your investment earnings.As with your 401(k) plan, federal and state in- come taxes won't apply to future investment earnings until you withdraw them. · Avoid early payment penalties.If you take payment too early, usually before age 55 (see Chap- ter 18, "Cashing In or Out of Your 401[k]"), Uncle Sam applies a 10 percent early payment penalty tax in addition to income taxes--unless you roll over your lump sum payment. · Avoid automatic withholding.The IRS automatically applies 20 percent withholding on your lump-sum payment (see Chapter 18), unless you roll it over. However, be careful: Not all roll- overs give you this protection. (See the next section for more information.) Warning! If you request a regular rollover of your money, you must deposit the entire amount into another tax-deferred account within 60 days. The 60 days begins when the check arrives. Remember that 60 days is 60 days. It's not 61. You can't use the "I forgot" defense. You can't blame it on your broker, bank, or investment company. If you don't get the money in before 60 days, it's all taxable. This is one envelope that you shouldn't forget to mail. (The IRS is allowed to waive the 60-day rule in cases of natural disaster, hospitalization, or "other similar