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The two things that everyone could use more of are time and money. One way to help free up some of both is by rolling over your existing retirement assets into an Individual Retirement Account (IRA). An IRA rollover may give you greater control of assets spread across multiple accounts and potentially offers improved diversification, flexibility, guidance and service. This could save you money in fees and other costs from different accounts as well as cut down on financial paperwork and other headaches from dealing with multiple assets. Here are some basics from Thrivent Financial regarding what you need to know about rolling over to an IRA.
- What is an IRA rollover? An IRA rollover is the act of funding an IRA with assets moved from an existing tax-qualified retirement account, a pension plan, a profit sharing plan, 401(k) plan, 403(b) plan or another IRA (with the exception of a Roth IRA, which can only be rolled into another Roth IRA) without penalty or tax withholding, for continued tax-deferred growth potential.
- Who can open a rollover IRA? You can roll over money from a former employer's retirement plan (profit sharing, 401(k), 403(b), Roth 401(k) or Roth 403(b), etc.) to an IRA if you experience one of the following triggering events as permitted by the plan:
- Change of employer
- Termination of an employer's existing plan
- Retirement
- Reaching age 59 1/2
- Disability
- Divorce
- Death
You may also roll over or transfer assets from most traditional, Roth, SIMPLE and SEP IRAs into an IRA. The assets in the old plan or account are "rolled over" into an IRA and retain their tax-deferred growth potential.
- Why move funds into a rollover IRA? There are potentially four primary benefits in rolling tax-qualified retirement savings over to an IRA. These include:
1. Easier management of retirement assets. Consolidating multiple tax-qualified workplace retirement accounts into a single IRA may make it easier for you to manage your retirement assets. Instead of piecing together multiple statements to find your overall investment performance and balance, just one statement does the trick.
2. Increased investment options. Rolling over to an IRA may offer more investment options than your employer and plan custodian. More options may help you better diversify your investments or better align your accounts with your risk tolerance. Remember, while diversification can help reduce market risk, it does not eliminate it.
3. Potential tax-deferred compounding. IRA rollovers may offer continued tax-deferred treatment of retirement assets. There are two ways to accomplish an IRA rollover. Request a "direct" IRA rollover from your former employer or an "indirect" rollover.
4. Simplified calculation of required minimum distributions (RMDs). Required minimum distributions (RMDs) - the minimum amounts that a retirement account owner must withdraw annually starting with the year that he or she reaches age 70 1/2 or, if later, the year in which he or she retires - must be calculated for a combination of all your tax-qualified retirement accounts. Consolidating retirement accounts into one rollover IRA simplifies the calculation of a required minimum distribution. (Required minimum distributions cannot be included in a rollover IRA.)
