When leaving one employer for another, it is important for you to roll your individual retirement account (IRA) out of your past employer's retirement account and into your own. To avoid expensive tax implications, your retirement money needs to be rolled over directly into a new IRS-approved retirement account using a very specific procedure.

Here is some information to help you better understand personal IRA direct rollovers to help you avoid a tax penalty.

IRA Rollover Basics

Since you have no way to know for sure that your past employer will still be in business when it's time for you to retire, it is always advisable that you move your IRA out of their company's retirement account and into your own. Rolling over your IRA ensures that you retain control over your own money, and it makes accessing your money at retirement time a lot easier. However, you do need to roll your IRA funds correctly into your new account in order to avoid a penalty from the IRS.

IRA Tax Penalties for Early Withdrawl

Depending upon your overall financial situation and age, you may face stiff penalties from the government tax authorities if you withdraw your IRS funds before you are allowed to do so under the tax code. For this reason, you should always move your IRA funds using what is referred to in the financial industry as a direct rollover.

Using a Direct Rollover to Prevent Tax Penalties

With a direct rollover of your IRA funds, your old company's bank will move your retirement money directly into a new IRA account that you set up with a bank or brokerage. This electronic transfer of funds from one bank to another is proof to the IRS that you are not withdrawing the money early, but rather you are placing it into a new IRS-approved account according to their own guidelines.

To start the process of the direct rollover, you will need to contact the brokerage or bank that you want to open an account with. After they open an account for you, they will ask your company to disburse the funds from your retirement account directly into your new account. The funds will be transferred through a direct transfer and you should never see any checks arrive to fund your account. In a few days after you request the transfer, you should check your new account to verify the funds arrived safely. For more information, talk to a professional like Wells Fargo Advisors Financial Network.