The Guide to a Successful IRA Rollover

  • If you're nearing retirement age or plan to retire soon, you may be interested in rolling over some or all of your 401(k) or employer-provided retirement plan into an IRA.
  • An IRA rollover can be a viable option, but it's not without risks.
  • If you are nearing retirement, you may be interested in rolling over some or all of your 401(k) or employer-provided retirement plan into an IRA.
  • A rollover can be a viable option, but it's not without risks.
  • Here are a few things to consider before you make the decision to roll over your retirement assets to an IRA.

If you're nearing retirement age or plan to retire soon, you may be interested in rolling over some or all of your 401(k) or employer-provided retirement plan into an IRA. An IRA (individual retirement account) is a type of retirement account that allows you to invest for retirement and defer taxes on any gains.
While an IRA rollover can be a viable option, it's not without risks. Here are a few things to think about before you make the decision to roll over your retirement assets to an IRA.



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Types of Rollovers

IRA Rollovers: There are three main options when moving a 401(k) or 403(b) into an IRA:
Direct Rollover: The receiving IRA is referred to as the “trustee-to-trustee transfer."

Direct Transfer: The receiving IRA is referred to as the “trustee-to-trustee transfer."

In-Kind Transfer: The receiving IRA is referred to as the “trustee-to-trustee transfer."

The process for each of these methods is nearly identical.

Traditional IRA Rollover

If you currently have a 401(k) or employer-sponsored retirement plan, you can roll over those assets into a traditional IRA. The assets from your old plan are transferred and deposited into a new account that you open with a financial institution, such as a bank or investment firm.
IRA Rollovers
To roll over a 401(k) or other employer-sponsored plan into an IRA, you'll need to complete an IRS form called an "IRA Rollover Request" or a "Direct Rollover Request." You may also need to complete an "IRA Contribution Statement."

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Rollover to Another IRA

A rollover is when you transfer an employer-sponsored retirement plan (such as a 401(k)) into an IRA. This usually requires filling out a few forms, but can also involve additional paperwork. In order to complete a rollover, you will need to:

Determine which IRA provider to use

Find the paperwork needed to complete the rollover

Figure out how much money to transfer

This is generally a fairly simple process, and your HR department or employer should be able to walk you through it.

Rollover to Employer Retirement Plan

In order to roll over your 401(k) or Traditional IRA, your employer must allow you to do so. Otherwise, you can roll your own 401(k) into an IRA.
Rollover to Roth IRA
Though there is no limit on the amount of money you can roll over, only single filers with adjusted gross income (AGI) of $120,000 and couples with AGI of $189,000 will be ineligible for Roth IRAs.

Rollover to a Rollover IRA

If your old 401(k) plan allows rollovers to a new retirement account, you can roll over your 401(k) funds to a new retirement account, such as a traditional or Roth IRA.
You must roll over the entire 401(k) balance.
The new account must be an IRA.
The 401(k) plan must be terminated.

Rollover to an Individual Retirement Account (IRA)
If your old 401(k) plan doesn't allow rollovers, you can roll over your 401(k) funds to a new retirement account, such as a traditional or Roth IRA.
You must roll over the entire 401(k) balance.
The new account can be a traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, or traditional 403(b) plan.

Rollover to a 401(k) Plan

If your employer offers a 401(k) plan, rolling over funds from a traditional IRA to a 401(k) plan may be the easiest route to take. There are several benefits to this move:
The money in the 401(k) grows tax-deferred until you withdraw it in retirement.
An employer match may add to your savings.
The 401(k) plan may offer more investment options.

Rollover to a Roth IRA
If you anticipate being in a higher tax bracket when you retire, a Roth IRA may be a better option. Contributions are made on a post-tax basis, so you won't pay taxes on withdrawals that are qualified. Roth IRA funds can be withdrawn tax-free in retirement, as long as certain criteria are met.

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Rollover to a 403(b) Plan

A 403(b) plan is similar to a traditional IRA or 401(k), but it's offered by nonprofit employers. You can roll over funds from your 401(k) or traditional IRA into a 403(b) plan.
Rollover to a Roth IRA
A Roth IRA is a type of individual retirement account that allows a contribution to an account that has already been taxed. With a Roth IRA, you'll pay taxes on the contributions you make, but you won't pay taxes when you withdraw the money.
Rollover to a SEP IRA
A SEP IRA is a special retirement account that's designed for self-employed individuals. It's similar to a 401(k), but it's designed for sole proprietors, with some exceptions.

Rollover to a TSP

A TSP rollover is the simplest form of IRA rollover and can be done online. The TSP website has step-by-step instructions for how to roll over funds.
Rollover to a Traditional IRA
Before doing a rollover, you will need to open a Traditional IRA.

Rollover to a SEP-IRA

A SEP-IRA allows you to contribute up to 25% of your net earnings or $56,000 in 2021, whichever is less.
With a SEP-IRA, you must either be a sole proprietor or a member of a partnership.
You may elect to contribute up to 25% of your net earnings or $56,000 in 2021, whichever is less, to a traditional IRA, a SIMPLE IRA or a SEP-IRA.
All contributions and earnings are tax-deferred.
The contribution limit increases to $63,000 for 2022.

Rollover to a Simple IRA
A SIMPLE IRA allows you to contribute up to $13,000 in 2021 ($14,000 in 2022).
Once you reach age 50, you may contribute up to $19,000 ($20,000 in 2022).
With a SIMPLE IRA, you need not be an employee.
All contributions and earnings are tax-deferred.

Rollover to a Traditional IRA

A rollover is the transfer of assets from one eligible retirement plan to another. For example, a person might want to start an IRA while continuing to work but may not have access to an employer-sponsored plan.
A rollover to a new employer plan or IRA is referred to as a "direct rollover."
A rollover to a new employer plan or IRA and a subsequent withdrawal would be referred to as a "partial rollover."
A rollover to a new employer plan or IRA and a subsequent rollover would be referred to as a "two-for-one" rollover.

Rollover to a 401(k)
A rollover is the transfer of assets from one eligible retirement plan to another. For example, a person might want to start an IRA while continuing to work but may not have access to an employer-sponsored plan.
A rollover to a new employer plan or IRA is referred to as a "direct rollover."
A rollover to a new employer plan or IRA and a subsequent withdrawal would be referred to as a "partial rollover."
A rollover to a new employer plan or IRA and a subsequent rollover would be referred to as a "two-for-one" rollover.

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Rollover to a Roth IRA

To roll over to a Roth IRA, you have to complete the following steps:
Open a Roth IRA account at a new brokerage firm or bank

Transfer your IRA assets to the new firm

Rollover your traditional IRA into the new account

Make whatever additional contributions you want

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Rollover to Another Retirement Plan

A rollover to another retirement plan is when you move money from one retirement account to another. For example, you may have a 401(k) with your current employer. You can rollover your 401(k) balance to an IRA or to your new employer's 401(k).
Rollover to New Employer Plan
You can rollover to your new employer's 401(k) plan, but this option isn't always available. If you leave your job, you can rollover the 401(k) balance to an IRA.
Rollover to IRA
A rollover to an IRA allows you to move your retirement account balance from an account with another employer to an IRA. If you don't qualify for a rollover to your new employer's 401(k) plan, you can roll over your 401(k) balance to an IRA.

Rollover to Another Tax-Deferred Account

If you have an IRA, you may be able to roll over your TSP money into an employer-sponsored plan, such as a 401(k) or 403(b) plan, tax-free. This is true whether you rolled it over from a TSP or another retirement plan.

Other tax-advantaged accounts include:

401(k)/403(b)

457(b)

TSP or 403(b) annuity

SEP IRA

Rollover to an Existing IRA or Roth IRA
If you are over 59 1/2, you have a number of options for transferring your TSP money to either an existing IRA or Roth IRA.

Rollover to an IRA: You may transfer TSP money to a traditional, Roth, or SEP IRA.

Rollover to a Roth IRA: You may transfer TSP money to a Roth IRA. However, there are income limits that may prevent you from doing so.