Since you have retired, are you taking into consideration moving funds out of your qualified retirement plans (profit sharing, 401(k), 403(b), etc.) to your personal IRA? These kind of rollover IRAs can possibly offer you more investment possibilities and enhanced opportunities your hard-earned dollars.
If you complete rollover IRAs of your firm's retirement account, there are some important concerns.
The main consideration regarding rollover IRAs is whether to choose a traditional IRA rollover or a Roth IRA rollover. The difference is as follows. Rollover IRAs to traditional IRA accounts are completely tax-free. The funds are simply transferred from the 401(k) account to the IRA and the money continues to grow tax-deferred. IRA rollovers which go into Roth IRA accounts call for paying an IRA tax on the money that comes out of your 401(k) or company retirement plan. The advantage of paying the tax today is that future withdrawals from the Roth IRA rollover will be tax-free. The choice is a major financial consideration which you should review with your tax accountant or retirement advisor.
Why would someone considering rollover IRAs willingly pay income tax today? If they expect their tax bracket or US tax rates to rise in the future, it could make good sense to pay taxes today to avoid higher taxes later.
As to the mechanics, first, you may want to conclude your rollover IRAs in such a way that you are not susceptible to a withholding tax. Plan custodians must withhold 20% regarding federal income tax out of your distribution unless the cash is going directly to another trustee. You would then only obtain 80% of your retirement money since the rest will go to the IRS for tax on the transfer. You will get these funds back later, but this withholding can be avoiding in total. Simply have the rollover IRA transfer handled directly between your ex-employer and your IRA custodians and the withholding tax is avoided.
Next, you need to stick to your former employer's process for rollover IRAs to the letter, or it will take a long time to transfer your money. Many retirement plan administrators have specific documents you have to use for completing rollover IRAs; several may even require personal signature guarantees (from your financial institution). In some cases there may be specific points in the calendar for completing steps in the process. As an example, some administrators could possibly want the request for rollover IRAs to be made by the particular 15th of the month preceding the end from the calendar quarter before the quarter when you want to get the funds. And then, you may have to wait another 90 days or even more for the new IRA trustee to actually receive your current rollover IRAs. Of course, the rules are different among administrators. For this specific reason, it is a good option to learn what the rules for rollover IRAs that apply for your ex-employer(s).
Rollover IRAs have great benefits.
Lose a Fortune on Your 401k Rollover
If you do not do any of these correctly:
- Opt for a distribution rather than direct transfer
- Rollover company stock to an IRA
- Choose to rollover to a Roth IRA
- Rollover to your new employer’s 401k
- Rollover post-tax contributions
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