What Accounts Can I Roll My 401k Into?
With more people switching jobs every year, many individuals may have multiple retirement accounts that contain their retirement money. A rollover can help bring it all together into one account while opening up more investment choices.
Rolling your money over into an Individual Retirement Account (IRA) is often the optimal decision, as this allows your funds to remain tax-deferred while giving you more investment options tailored to your own goals and time horizon.
1. Traditional IRA
Before moving any assets from employer-sponsored plans into an Individual Retirement Account (IRA), be sure to compare both accounts carefully in terms of benefits and drawbacks before making your choice.
No matter if you’re transitioning into another company or retiring, transferring assets into an IRA can help simplify recordkeeping and expand investment options – but you should carefully consider fees, services and protection from creditors before making a decision.
Direct rollovers involve having the administrator of your previous plan issue a check or initiate an electronic transfer directly into your new retirement account, though you should ensure this occurs quickly as any delays could result in tax liabilities.
2. Roth IRA
Rolling funds from a traditional, pre-tax 401(k) into a Roth IRA is possible but usually not recommended as you could face paying tax on converted funds in their entirety as ordinary income during conversion year, unless withdrawing them as retirement savings at age 6012+.
Consolidating your retirement accounts can help you lower costs, avoid fees and better keep track of all your assets. Consolidation also can shield funds from creditors or legal judgments that might come their way; direct rollovers provide an easy solution – your 401(k) administrator sends funds directly from their plan administrator to a new IRA provider without ever having to touch or control these funds directly yourself.
3. SEP IRA
Simplified Employee Pension Individual Retirement Accounts (SEP-IRAs) can be an attractive retirement solution for business owners with few or no employees, such as sole proprietors, partnerships and certain corporations. As an employer, you decide annually how much to contribute towards each employee’s SEP-IRA account and contribution limits are generally higher compared with traditional IRAs.
As with traditional IRAs, SEP-IRA funds can be transferred between accounts at any time; however, any earnings will be taxed when you withdraw it during retirement (unless qualifying hardship distribution occurs). Your SEP-IRA trustee handles depositing contributions, investments and annual statements with the IRS for filing purposes – you can even transfer these between trusts using direct rollover, trustee-to-trustee transfer or 60 day rollover!
4. SIMPLE IRA
SIMPLE IRA contributions are tax deferred, so when they withdraw them they’ll need to pay taxes (except Roth contributions ). However, if an employee converts their balance within two years into a 401k account without waiting two years first they must include this distribution as part of their taxable income.
This requirement was altered by the Protecting Americans from Tax Hikes Act of 2015, which broadened eligibility for rollover to a SIMPLE IRA and replaced them with safe harbor 401k plans that must be in place by December 31 of their replacement year – providing employees a convenient opportunity to switch assets between SIMPLE IRAs and 401k plans.
5. Rollover IRA
Rolling your 401(k) funds into an IRA allows them to remain tax-deferred, and can be done either directly or indirectly. With direct transfers, your new IRA administrator receives funds electronically or by check directly from your previous provider who then withholds any taxes due before depositing them into your new account.
IRAs offer many advantages over workplace plans, including lower fees and greater investment choice. Furthermore, IRAs also provide greater creditor protection than employer-sponsored accounts for your retirement savings.
At some point in their retirement lives, most people do end up consolidating their old retirement accounts with one another to help simplify things and assess assets and liabilities more easily.
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