You're on the job, setting aside money in your employer-sponsored retirement plan. You decide to terminate employment or retire. If you are under age 59 ½ and take a lump sum withdrawal, it may be subject to an additional 10% early withdrawal tax. This withdrawal will also be subject to ordinary income tax. Rolling this money over to your IRA may be a better solution.
What is a rollover IRA?
An IRA rollover occurs when you transfer money from employer-sponsored retirement plans into a traditional or Roth IRA. In a rollover, you're keeping your money tax-deferred until you choose to withdraw it. The rollover option might also give you more investment freedom - options that may not have been available under your employer-sponsored plan. You can also use it to consolidate multiple accounts which may help you manage them more easily.
Keep in mind that your IRA may be subject to market risks, including possible loss of principal.
Three common reasons to rollover are:
- You get a new job
- Your employer stops offering a retirement plan
- You retire
Keep in mind that there are some IRA rollover rules:
- You can’t take a loan from your IRA
- With a traditional IRA, you must begin minimum distributions at age 70½
- You may lose protection from creditors
There are some very good reasons to consider rolling money over into an IRA:
- Preserve retirement savings by avoiding taxes and the additional 10% early withdrawal tax
- Consolidate and simplify your retirement savings into one account
- You can rollover as many accounts as you have – no limits
- Choose from a broad range of investments
Setting up an IRA rollover
Rolling over an IRA can be quick and easy. An investment professional can help. Talk with your advisor to:
- Determine if an IRA fits in your investment portfolio
- Discuss your retirement and long-term financial goals
- Review your financial statements to understand your situation
Have more questions about setting up a rollover IRA? Contact your advisor today.