What Is A Rollover IRA?
Why Choose a Rollover IRA?
There are many reasons someone might choose a Rollover IRA, but the most common is leaving a job where your current retirement account is hosted. When one leaves a job, they may want to transfer accounts and get better benefits or disassociate themselves with the current company. There might also be additional fees that their retirement account has that another account may not have. Whatever the reason is, researching a rollover is important to be sure that your financial future is protected. If it was recommended to you by a broker, their advice can also be helpful.
How to Rollover
Rolling over your 401k or IRA into a new IRA account isn’t as difficult as it sounds. First, you need to contact the administrator of your plan. If you are unsure of who this is, contact your HR department and they can assist. At some companies it might even be the HR department's broker that handles accounts. Then, you need to sit down with them and discuss the rollover and get a check sent directly to your new account. If this is done within 60 days there will be no penalties so be sure that the check is deposited quickly.
IRA Rollover Taxes
If you proceed with a direct transfer, the IRS will not take any taxes or penalize your IRA. This is ideal if you would like to avoid penalties and make sure that your funds don’t shrink as you proceed with your rollover. If you receive a check, there may be an IRS penalty and you may have to pay 10-20% in fees. To avoid possible errors and IRS misreporting, be sure to speak with a qualified broker or accounting professional. There are also brokers who work with rollovers all the time and they are the right people to talk to about any tax questions.
IRA Rollover Risks
If you follow the guidelines, these transfers are risk-free but there are some errors you need to watch out for. For example, if you miss the rollover deadline you can be taxed or penalized by the IRS. The Internal Revenue Service does not offer grace periods or a reduction in these penalties. This is the biggest risk of this type of transfer. If you are currently employed at the company that set you up on your current retirement account, and you want to transfer, you may lose employer contributions. Be sure to speak with your HR department before proceeding.
Is a Rollover IRA the Right Choice?
There are several great reasons on why a Rollover IRA is the right choice for setting you up for retirement. If you are transferring to a new job, rolling over your IRA or 401k to a new IRA is a good idea as you will not be penalized if you follow the right guidelines. There is also the issue of missing a deadline or not getting more employer contributions, but if you are leaving a job that is not an issue. Overall, it's important to speak to a broker to be sure if it's right for you.