IRA Rollover Rules

You will not be employed for a lifetime. Each one of us will reach a point where we are going to prioritize retirement planning. It is true that almost all employees tend to move from one job to another for career growth and development, which may affect their retirement savings plan.

Although there are some companies that will allow their employees (or former employees, for that matter) to keep their retirement savings in their plan’s account until they reach retirement age, even if they leave the company, these employees may lose some flexibility in how their money is invested after they cut their ties with their employer. Most of us do not like the idea of getting our investment plans frozen, while there are others who just want to consolidate their retirement plans into one account, as managing several accounts may be tiresome. With this, an IRA or Individual Retirement Account rollover will be necessary.

What is an IRA Rollover?

An IRA rollover is a tax-free distribution which a person takes from one retirement account that is contributed to an IRA. Several types of retirement accounts may be rolled over into a traditional IRA; this includes another IRA, employer’s qualified plan such as a 401k plan, deferred compensation plans, and a tax-sheltered annuity plan. Of course, there are certain IRA rollover rules that need to be followed for this type of transaction.

Usually, most employees who left their employer where they had a 401k account opt to rollover their funds to a traditional IRA. This 401k rollover to IRA is in fact the best option that he could make, as the IRA offers a variety of better and low-costs investment options. If a person with 401k decides to rollover his funds to an IRA, it is really recommended that he makes a thorough research and choose the bank or financial institution which could give him the best IRA rates in order to ensure profitability for his investment.

There are certain 401k rollover rules that must also be considered and followed. In general, the 60-day rollover rule is applicable, where a person is given 60 days to rollover the funds from another retirement account into an IRA after receiving the distribution. An extension may be allowed, provided that the deposit becomes frozen within the 60-day period, that is, if the money is being held by the bank that turned bankrupt during these 60 days. The IRS, or Internal Revenue Services, has a very cautious approach when it comes to rollovers, that is why the investors need to be very careful with such.

If in case the investors who had rolled over their 401k accounts to an IRA decide to invest in a Roth IRA, it will also be possible for the traditional IRA to be converted to a Roth IRA. Since the investments with Roth have the capability to grow tax-free profits each year, most of the wisest investors prefer the Roth IRA vs 401k and traditional IRA. Moreover, there is a variety of best Roth IRA providers to choose from in case the investors decide to convert it to Roth.

This entry was posted in IRA Rollover and tagged , , , , , , , , , , , . Bookmark the permalink.

Comments are closed.