Learn More About Rollovers

Individual Retirement Accounts (IRAs) have limits on how much you can contribute each year. There are no limits on how much you can move into an IRA by rolling over dollars from a 401(k) or other workplace retirement plan or from an IRA at another financial institution.

In recent years, the assets flowing into Traditional IRAs from rollovers have been more than 20 times the dollars flowing in as new contributions, according to industry data.1 And among households with Traditional IRAs, more than half have made rollovers into their IRAs at some point in time, data show.2

Here are a few important things to know about rollovers as well as additional resources to learn more.

401(k) to IRA

When you leave a company where you participated in a 401(k) plan, you generally have multiple options for what to do with the money. Your options may include keeping your money in the plan, rolling the money to an IRA, rolling the money to a new employer’s 401(k) or withdrawing the money.

It is important to carefully weigh the tax and investment implications of each option, as well as other factors and preferences you may have for managing your retirement savings. For example, if you have a number of old 401(k) accounts from previous jobs and consolidating them into one account would make it easier to monitor your holdings and invest the money in line with your objectives, that might be one factor to consider when reviewing your options.  Keep in mind that each option may offer different benefits and trade-offs in the context of your overall goals, and you should consider factors specific to your situation when making a decision.

There is generally no tax due if you roll money from a 401(k) funded with pre-tax contributions to a Traditional IRA or from a Roth 401(k) funded with after-tax contributions to a Roth IRA. Be aware, though, that if you request a distribution from a 401(k) be paid to you directly (rather than to the IRA provider for the benefit of your receiving IRA), 20% of the proceeds will generally be withheld for federal tax—even if your intention is to roll all of the money to an IRA. That’s one reason that it is often preferable to request a “direct” rollover when moving money from a 401(k) to an IRA.

There is also a one-per-year limit on indirect IRA rollovers, as discussed in the next section.

IRA to IRA

When considering moving money from an IRA at one provider to an IRA at another provider, some factors to weigh include the selection of investments available, the services provided and the fees. The decision of what is important to you and what you are willing to pay for it is a personal one. It is impossible to know how different investments will perform over time. All other things being equal, however, lower investment costs will result in a larger balance over time.

There is generally no tax due if you roll money from one Traditional IRA to another Traditional IRA or from one Roth IRA to another Roth IRA. However, there are issues to consider regarding indirect rollovers in which you request a distribution from your existing IRA and then deposit those dollars in a new IRA, rather than having the funds moved directly from one IRA provider to another. First, you generally are limited to one indirect rollover within any 12-month period.  Second, generally you must deposit the indirect rollover in another IRA within 60 calendar days; otherwise, the withdrawal may be treated as an early distribution that is potentially subject to tax and penalties. These considerations do not apply when you transfer funds from one IRA trustee directly to another.

 

At Honest Dollar by Goldman SachsTM, individuals can open a Traditional, Roth or SEP IRA in minutes and get access to diversified investment portfolios constructed by the Goldman Sachs’ Investment Strategy Group.

1https://www.ici.org/pdf/rpt_17_ira_traditional.pdf

2https://www.ici.org/pdf/per23-10.pdf

Before deciding to roll over a retirement account, you should consider your personal circumstances and needs.  If you are considering moving from one account to another, you typically can decide among a number of options such as:  keep the assets in the existing plan or account; roll over the assets to your new employer’s plan (if applicable); and/or roll over the assets to an IRA.  These options may offer different benefits and drawbacks in the context of your overall planning and retirement goals.  Some general considerations include fees and expenses, available investment options, distribution rules including required minimum distributions, tax considerations, protection from creditors and legal judgments, differences in service levels, and other factors that may be specific to your circumstances.

Honest Dollar’s communications to you about rollovers are provided to you solely on the basis that they are educational and intended to provide you with general information that does not address your specific personal circumstances.  They are not intended to be an individualized recommendation that you take any particular action.

 


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