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Be Wise With Money

IRA Rollovers: What Should You Know?

Reasons you might want to roll retirement accounts into an IRA

IRA, 401k

If you have a number of 401(k)s, keeping track of them can feel a bit like herding cats. You want to be wise with your retirement savings, so how can you reduce the “paperwork” and maybe gain some advantages? Think about rolling them into a single individual retirement account (IRA).

While rolling your retirement savings account into an IRA can help simplify your retirement planning, it’s important to understand all of your options first. Be sure to keep IRA rollover rules and other factors in mind before deciding.

Benefits of an IRA:

  • Multiple 401(k)s can be moved into a single IRA, saving you some work and time since you’ll only have one account to keep track of.
  • IRAs have more investment options than 401(k)s, giving you more choices to potentially grow your money.
  • The new money you put in to your IRA may be deducted on your tax return, thus reducing your income tax liability.
  • IRA distributions don’t require the mandatory 20% federal tax withholding that 401(k) distributions are subject to.
  • The power of tax-deferred compounding will continue

Benefits of a 401(k):

  • If you are 55 or older, you have the option to take out funds without penalty if you quit your job, get fired or retire.
  • Some employer-sponsored plans allow you to borrow from your 401(k). Moving to an IRA means giving that up.
  • Annual contribution limits are lower for IRAs than they are for 401(k)s: $6,000 ($7,000 if age 50 or older) for IRAs, compared to $19,000 ($25,000 if age 50 or older) for 401(k)s for tax year 2019. Annual contributions are indexed for cost of living.
  • The power of tax-deferred compounding will continue.
  • Fees and service charges need to be considered because they could be lower in a 401(k) than in your IRA.

Rolling your retirement accounts over to an IRA can help you simplify your retirement savings plan. Plus, an IRA offers some tax and investment advantages that 401(k)s may not. Work with a financial representative to see if an IRA rollover is right for you. 

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