What is a Rollover IRA?
A rollover individual retirement account (IRA) is an account used for the transfer of assets from a previous employer-sponsored retirement plan, like a 401(k) or 403(b). If you have left your job and have an old 401(k) or 403(b), you may want to roll that money into an IRA and begin to take control of it.
First, what are your options when it comes to an old retirement plan?
- Leave your assets in your previous employer’s plan (if they permit it).
- Rollover your money into your new employer-sponsored retirement plan (if they permit it).
- Rollover your old 401(k)/403(b) into an IRA.
- Take the cash, which could trigger tax ramifications and a 10% penalty if you are younger than 59 ½ years old.
Why should you consider a rollover IRA?
The rollover process into an IRA keeps your money invested while preserving the tax-deferred status of the assets. Additionally, it does not trigger any immediate tax ramifications or penalties.
Typically, most employer plans and vendors charge considerable account fees, fund fees, and brokerage commissions. It will most likely be cheaper to manage your rollover IRA, with less administrative and management costs.
Employer-sponsored plans typically have limited investment options. When you rollover an old plan into an IRA, you gain more flexibility in managing how these funds are invested. You may choose to invest it on your own, or you may hire an investment advisor to help with this process.
An IRA will give you more convenient access to your money when you need it. It is often difficult to communicate with an old employer and its administrators, making it a slow and tedious process to access your money within the previous employer plan. With an IRA, you can access your money quicker when you need it most.
(It is important to note that you can withdraw money from an IRA penalty-free if you are 59 ½ years old or older, and for certain medical, housing, and higher education expenses.)
How to rollover your old 401(k) or 403(b) into an IRA?
- Open an IRA (we use Schwab). You will have to choose between a Traditional and a Roth IRA depending on the type of contributions that were made.
- Fund your account. Complete the paperwork required by your old employer to initiate the transfer process.
- Invest your retirement funds wisely!
About the Author
Kawika Shoji is an investment advisor and portfolio manager at Regency Capital Management. He advises individuals, families, retirement plans, and institutions to assess, develop, and implement their investment and financial goals.
