Rollover IRAs

What Is a Rollover IRA?

After a job change, you must decide what to do with your 401(k). Although some employers allow you to leave your money in your account, they may charge you fees as a non-employee. Also, you’ll no longer have access to company HR specialists to assist you with your plan. 

A rollover individual retirement account (IRA) enables you to transfer a 401(k) from a previous employer-sponsored retirement account to a traditional IRA or Roth IRA. If you already have an IRA, you can transfer the balance from your past retirement plan into that account. If not, you can open a new traditional IRA or a Roth IRA. With a traditional IRA, your initial contributions are tax-deductible, and withdrawals are taxed in retirement. 

Unless you are rolling over a Roth 401(k) into a Roth IRA, your contributions are not tax-deductible, but withdrawals made after the age of 59 ½ are tax-free. The wise choice depends on your larger retirement strategy. EP Wealth advisors look at the big picture to create solutions to help you save for the future and potentially mitigate your tax liability throughout your lifetime. 

The IRA Rollover Process

Once you determine the type of account you want, the 401k Rollover IRA process is straightforward. Typically, you contact your former employer, make the request, and complete the required forms to transfer the funds to the new account. 

You can have the money transferred instantly (direct rollover) or withdraw it and move it to the new IRA yourself (indirect rollover). However, if you don’t deposit all the money within the allotted time frame (60 days), you may owe taxes and early withdrawal penalties. Your retirement advisor can explain your options in greater detail to help you avoid these added costs.

Benefits of Rollover IRAs

Rollover IRAs offer numerous benefits: 

• Convenience: A rollover IRA allows you to keep all your retirement assets in one place, making them easier to manage.
• Tax incentives: IRA rollovers are non-taxable transactions, and you maintain the tax-deferred status on retirement assets if you roll them over when you leave your job (unless you’re converting funds to a Roth IRA.) 
• Lower fees: Rollover IRAs often have low or no administration fees compared to 401(k)s. 
• Investment options: An IRA offers a wider variety of investment options rather than being limited to the investments your employer provides. 
• Greater eligibility: Unlike a traditional IRA, which requires earned income to contribute, you can roll over your existing balance regardless of your income because you’ve already received the tax benefits on the money in your previous account.

A rollover IRA is a viable option if you change jobs, but the right approach depends on many factors. EP Wealth retirement professionals provide customized financial planning solutions tailored to your unique needs for today and tomorrow. 

Alternatives To a Rollover IRA

Transferring your retirement plan when you leave your job is not required. You can leave these funds where they are, even temporarily, until you decide your next step. Just be sure to read the fine print and check for restrictions or disadvantages of retaining your plan. As a former employee, you cannot contribute to that plan, and additional costs may be involved. 

It’s wise to research your new employer’s retirement plan to see if it makes sense to roll over existing assets from your past employer.  Sometimes, a new plan offers more promising investments and low fees. Or the opposite may be true. Your EP Wealth advisor is here to help you choose products that align with your retirement goals.   

Another alternative to a rollover IRA is to cash out your retirement plan. This is generally a last resort because it comes with heavy fees and penalties. That includes an early withdrawal fee and income taxes on the distribution amount. 

There are many paths to achieve your retirement savings goals. Connect with an EP Wealth advisor near you to learn more about retirement accounts or discuss your retirement planning needs.