Why Roll Over Your 401(k)?
There are several reasons why you might consider rolling over your 401(k):
- Investment options: IRAs often offer a wider range of investment options than 401(k) plans.
- Fees: IRAs may have lower fees than 401(k) plans.
- Inherited accounts: If you inherit a 401(k), you may need to roll it over to an IRA.
Rolling Over Your 401(k) into an IRA
When rolling over a 401(k), you have the option to convert it to a Traditional IRA or a Roth IRA.
- Traditional IRA rollover: This is the most common type of rollover. It preserves the tax-deferred status of your 401(k) balance.
- Roth IRA rollover: If you meet certain income requirements, you can convert your 401(k) to a Roth IRA. This allows you to pay taxes on the rollover amount but can provide potential tax benefits in retirement.
401(k) and Roth IRA Rollovers: Making the Most of Your Retirement Savings
Understanding 401(k) and Roth IRA Rollovers
When you leave a job, you have the option to roll over your 401(k) balance into a different retirement account. This can be a Traditional IRA, a Roth IRA, or another qualified retirement plan.
What is a 401(k)?
A 401(k) is a tax-advantaged retirement savings plan sponsored by your employer. Contributions are made pre-tax, which means you don’t pay income tax on them until you withdraw the money in retirement.
What is an IRA?
An IRA is a type of retirement savings account that individuals can contribute to. There are two main types of IRAs: Traditional and Roth.
- Traditional IRA: Contributions to a Traditional IRA may be tax-deductible, and the earnings grow tax-deferred. However, withdrawals
are taxed as ordinary income.
How Rollovers Work in Retirement
When you reach retirement age, you can start withdrawing funds from your 401(k) or IRA. The specific rules for withdrawals depend on the type of account and your age.
- Required Minimum Distributions (RMDs): If you have a Traditional IRA or a 401(k), you will be required to start taking RMDs beginning at age 73. These withdrawals are taxable as ordinary income.
- Roth IRA withdrawals: If you have a Roth IRA and meet certain conditions (e.g., you’re over age 59½ and have held the account for at least five years), you can withdraw funds tax-free.
Contact Advanced Retirement Group
If you’re considering rolling over your 401(k), we can help. Our experienced advisors can guide you through the process and help you choose the best option for your retirement goals.
Contact us to learn more about your options with a free, no-obligation conversation.
