What is a Rollover IRA? Retirement Rollovers Explained

Updated : Sep 10, 2019 in Articles

What is a Rollover IRA? Retirement Rollovers Explained


If you change jobs over the course of your
career, it can be easy to lose sight of your retirement accounts with previous employers. That’s when a rollover I-R-A can help. A rollover IRA is a holding account for funds
from previous employers’ retirement plans. In a rollover IRA, you roll over, or consolidate,
retirement accounts from past employers into one centralized account. Depending on which type of 401(k) you had,
you can roll it over into a traditional IRA or you can pay the taxes on it and create
a backdoor Roth. Check with a tax advisor before you do this only
Roth 401(k)s can be rolled over into a Roth IRA. The majority of retirement plans from former
employers are eligible for a rollover IRA. These include 401ks, Roth 401(k)s, 403bs,
457 plans, and Simple, or SEP, IRAs. Like these employer-sponsored retirement plans,
a rollover IRA grows tax-deferred, meaning you don’t pay taxes on the growth of investments
until you begin making withdrawals after the legal age of retirement. And if you roll a Roth 401(k) to a Roth IRA,
the account continues to grow tax-free because you’ve already paid taxes on the contributions. While the tax status stays the same as an
employer-sponsored plan, a rollover IRA also offers several potential benefits that you
typically won’t find in an employer-sponsored plan. First, a rollover IRA allows you to consolidate
all your old retirement accounts into one. Some investors find it easier to track and
manage their money from one central retirement account than from many smaller accounts scattered
across multiple brokerage firms. The second benefit is that you typically have
a broad range of investment choices, including mutual funds, ETFs, stocks, bonds, and more. You aren’t limited to a specific plan’s
investment choices. With more investment choices, you have more
control and the ability to better diversify your portfolio, which can help reduce risk. Lastly, if you ever change jobs again and
get another employer-sponsored plan, it’s easy to add that account to your existing
rollover IRA after leaving that position. Of course, there are also downsides to rolling
over an old employer-sponsored plan. You may be able to take out a loan against
your employer-sponsored account, which you can’t do with a Rollover IRA. Also, an employer-sponsored plan might offer
lower cost, institutional-class products, making your total costs lower than a Rollover
IRA. It’s worth noting that rolling over to an
IRA isn’t the only choice you have with an old account. You may be able to roll over into your new
employer’s 401(k), leave it where it is, or even cash it out though cashing out can
cause you to incur taxes and a potential penalty .
These are only a few advantages and disadvantages of a Rollover IRA. Before you decide what to do you with your
accounts, take the time to research and understand all the choices. And if you have any questions or just want
to talk it through, call 800-213-4583 to speak with a TD Ameritrade Retirement Consultant. We’re here to help.

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