Assuming you just started a new job and are busy meeting coworkers, setting up accounts, and exploring local lunch spots – you may not have given much thought to your 401(k).
Should You Roll it Into an IRA? A rollover may help simplify your retirement savings plan while potentially lowering fees and costs.
What is a rollover IRA?
Rollover IRAs are individual retirement accounts where you can move funds from an old employer’s retirement plan, such as 401(k), to preserve their tax-deferred status.
Your options for rolling over an IRA include either direct payment from your provider directly into the new account, or indirect rollover whereby you withdraw and deposit it back into an IRA later. Both methods require following specific IRS guidelines to avoid counting your distribution as taxable income or incurring early withdrawal penalties.
Rollover IRAs offer many advantages that can simplify your retirement savings picture. Tracking multiple retirement accounts can become complicated when approaching age when RMDs must start being taken out; by consolidating them all into one account, it becomes simpler to monitor progress toward goals and make necessary adjustments as needed.
How is a rollover IRA different from a traditional IRA?
Rollover IRAs are individual retirement accounts used to store funds from a former employer’s qualified retirement plan, such as 401(k). When switching jobs, funds may be directly rolled over or indirectly transferred via indirect rollover process.
With direct rollovers, your funds never touch your hands; for indirect rollovers however, within 60 days of receiving the distribution you must buy stock or mutual fund from your new IRA provider to avoid paying income taxes and an early withdrawal penalty.
Put all your money in one place to simplify management and provide greater clarity on your overall retirement picture. However, make sure you understand the differences between traditional IRAs and Roth IRAs and investment options available before consulting a financial professional on what option may work best for you. Separating your IRAs may also protect assets against creditors in case of bankruptcy proceedings.
What is a Roth IRA?
If you need help choosing an account type that best meets your goals and income levels, reach out to a financial advisor. They’ll be able to guide you in finding an account that suits them both.
Rollover IRAs are individual retirement accounts (IRAs) designed to allow you to transfer funds from an old employer-sponsored retirement account such as a 401(k). When done properly, direct rollovers keep funds tax-deferred while potentially mitigating taxes and penalties if withdrawals occur prior to age 59 1/2.
Once your rollover IRA is established, you have complete flexibility over how it’s invested–as long as annual contribution limits don’t get exceeded. A robo-advisor may help manage and make decisions for you at a fraction of the cost of human advisors; having all your retirement accounts under one umbrella provides greater clarity, helping ensure you stay on track as retirement approaches.
Can I convert a rollover IRA?
IRA rollovers allow individuals to transfer funds from an employer-sponsored retirement plan into an individual retirement account (IRA), where the funds can continue growing tax-deferred. Unlike 401(k)s which typically offer limited investment choices and high fees.
Rolling funds over is generally straightforward. Most IRA providers will assist the transfer by mailing a check directly to your former employer with instructions on how to distribute it – this practice is known as direct rollover and prevents it from touching any hands other than their own.
Keep in mind that only certain rollovers per year are allowed, which may present challenges once you hit retirement and need to begin taking required minimum distributions (RMDs). As such, it is wise to consult with a financial expert when considering the benefits of IRA rollovers.