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Is a rollover IRA right for you? First, get the facts

Moving retirement funds can make people uneasy because one simple mistake can lead to costly penalties and higher taxes. While there’s no substitute for working with a qualified financial advisor, the following information provides a helpful primer.
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A rollover, conversion, and transfer are words that refer to moving money from one retirement account to another. However, there are rules for how you can move around retirement funds.

An IRA transfer is when you move funds between the same variety of retirement accounts. When you move funds between two different varieties of retirement accounts, it’s called a rollover. When you change a traditional IRA to a Roth IRA, it’s called a Roth conversion.

Seems simple enough, right? However, the details are important because you don’t want to pay more in taxes than you have to. After all, retirement funds are meant for retirement.

If you’re retiring, you may want to take advantage of IRA rollover guidelines to move money from your 401(k) plan to an IRA. Keep in mind, if money from a retirement plan is paid directly to you, it could result in a mandatory tax. This happens whether or not you plan to roll it into another retirement plan at a later date.
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Taking this into consideration, it makes sense to roll over the funds into another retirement plan or IRA. In this situation, there are two distinct methods to perform an IRA rollover:

• a direct rollover
  
• a trustee-to-trustee transfer

The direct rollover option applies where you receive a payment (also called a distribution) from a retirement plan. You simply ask your plan administrator to pay an IRA (an IRA rollover) or to another retirement plan.

Are you receiving a distribution from an IRA? You can ask for the IRA payment to be made to another IRA or a retirement plan. This is called a trustee-to-trustee transfer.

There are a few other rules that require close attention. You can only perform an IRA rollover or transfer once per year. You must also ensure the money is in the new account no later than 60 days from the withdrawal date from the original account.

Can I perform an IRA rollover if I’m switching jobs?

In short, yes. In fact, you may even have some more choices to consider. You might be able to move into an IRA or a 401(k) with your new employer. It may even be possible to split funds between the two but this depends on the new employer’s 401(k) plan.

Whether you’re retiring or switching jobs, it makes good sense to talk to an experienced financial advisor. They can provide guidance about your asset wealth management and retirement planning options. At Asset Preservation Tax & Retirement Services, we are ready to help. Contact us today and make sure you’re getting the most out of your hard-earned dollars.

One wrong move can cause penalties and increased taxes when moving retirement funds. There’s no substitute for a qualified tax and financial advisor, but the following provides a helpful primer.

Roth IRA conversions

Another option retirees may consider is a Roth IRA conversion. A Roth IRA conversion offers many advantages, but it's important to consider a few key factors before.

The tax benefits of a Roth IRA are well known. You can make tax-free withdrawals during your retirement while benefiting from tax-free growth potential. Always speak with a financial advisor about your situation before deciding on an IRA conversion. The information below will help you understand the benefits and potential drawbacks.

Transferring retirement funds from a traditional 401(k) or IRA into a Roth account is a Roth IRA conversion. While you are required to pay taxes on all monies converted, all future withdrawals are tax-free. There are obvious benefits to this financial strategy. For example, if you believe you will save money by paying taxes now rather than at a future date.

There are different ways to perform a Roth IRA conversion

There are three ways that a Roth IRA conversion may be accomplished:

• a direct rollover
  
• a 60-day rollover
• a trustee-to-trustee transfer

Let’s break them down individually.

‍Direct Rollover: This process involves rolling money over from an employer’s 401(k) contribution plan to a new account. You may be issued a check from the administrator which you then deposit into the new account.

‍60-day Rollover: This is the process whereby money is paid to you and you deposit all or part of the funds into a Roth IRA. Obviously, you have 60 days to make the deposit after receiving the funds.

‍Trustee-to-Trustee Transfer: This is the process whereby assets from your traditional IRA are directly transferred by that financial institution into the account where your new Roth IRA is held. This may be a different financial institution or the same financial institution.

Does a Roth IRA conversion make sense for me?

Before deciding on a Roth IRA conversion, there are several factors to consider. However, if it’s the right choice for you, the financial benefits can be significant. A few things you may want to consider include:

Where do you plan on living when you retire? If you’re moving to another state to enjoy the many pleasures of retirement, you may want to take a look at that state’s tax rates. Some states exclude retirement income (including payments from traditional IRAs) from state income tax and others do not. Conversely, understanding your options may even influence where you decide to retire.

Who will receive your retirement savings as part of your estate? If you’re leaving retirement savings to your spouse, children, or another family member, consider how a Roth IRA conversion will affect their taxes. Heirs who receive IRA assets usually don’t have to pay income taxes, making this an appealing option. If your heirs are in a lower tax bracket than you, then a traditional IRA may be the better option, depending on other factors.

Do you have children who are of college age? If you have college-age children applying for federal financial aid, the money from an IRA conversion could count as income. This means that your children’s financial aid may be reduced because your expected financial contribution will be higher.