Rollovers

Rollovers — Simplify your savings accounts by teaching them to roll over

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Rollovers — Simplify your savings accounts by teaching them to roll over

A rollover is the transfer of money from one retirement account to another. You can roll over funds from one employer plan to another employer plan (if both plans allow it) or from an employer plan into an IRA, or from one IRA to another IRA.

Rolling over from an employer plan into an IRA when you leave a job offers several advantages:

  • Account control — A rollover IRA is held in your name giving you direct control over how you manage the money in the account. Also, you could choose to have your IRA held in the name of a trust to help with estate planning.

Rollovers are an efficient way to organize your savings and open up new investment options.

 

  • Investment choice — Employer plans like 401(k)s may offer a limited investment menu. A rollover IRA gives you access to virtually the entire investment universe. This may make it easier to build a diversified portfolio matched to your needs. As a bonus, account fees may be lower than in an employer plan.
  • Consolidation opportunities — You can transfer money from multiple employer plans into a single rollover IRA for simpler account management and oversight.
  • Additional contributions — You can’t contribute to an employer plan if you no longer work for the employer, but you may be able to make contributions to your IRA, which can help your account grow.

 

Be direct and avoid penalties

While not a recommended option, the balance from your retirement plan can be paid directly to you and then you would be responsible for depositing the funds into a rollover IRA. For most people, this is not a good idea because the retirement plan must withhold 20 percent of your withdrawal for income taxes. That means you have to make up that 20 percent out of your own pocket to avoid owing taxes and a 10 percent penalty on the amount withheld for taxes.1 Sound complicated? It can be. Also, if you do not manually transfer your retirement plan balance (including the 20 percent you added to make up for the tax withholding) to the IRA within 60 days, your account balance may be subject to additional fees and penalties.

A better solution is a direct rollover. You simply ask your retirement plan administrator to directly transfer your account balance into your rollover IRA. You never touch the money and there are no worries about taxes and penalties.

Keep your savings on track

Rollovers can simplify your life by limiting the number of retirement accounts you have to manage. It can be an efficient way to organize your savings and open up new investment options. We’re here to help you determine if a rollover is right for you and to help you through every step of the rollover process.2

1 Withdrawals from tax-deferred accounts prior to age 59 ½ (55 if retiring or separating from service) are subject to a 20 percent withholding tax. The entire withdrawal, including the amount withheld for taxes, must be deposited into a rollover account within 60 days. If it isn’t, federal income taxes plus a 10 percent penalty will be owed on the entire withdrawal amount.

2 Before transferring assets, carefully consider the features of both the existing and the new product for differences in costs, surrender charges and other important aspects. There may also be tax consequences associated with the transfer of assets. Consult with your own advisors regarding your particular situation.

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