Maximizing Your Retirement Savings: Your Guide to IRA Rollovers When Leaving a Job

There are several reasons why you might consider rolling over your 401(k) into an IRA:

More control: When you roll your 401(k) over into an IRA, you become the owner and manager of your retirement funds. This gives you more control over how your money is invested, when and how much you withdraw, and other important decisions.

More investment options: With a 401(k) plan, you are limited to the investment options offered by your employer. When you open an IRA, you have access to a much wider range of investment options, including individual stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

Interested in even more investment options? You may look into rolling your 401(k) into a self-directed IRA. A self-directed IRA is an IRA that allows you to invest in a wider range of assets, including real estate, private equity, and other alternative investments that are not typically available through traditional (non-self-directed) IRAs. To open an account that offers this type of flexibility, you need to seek a self-directed IRA custodian.

Consolidation: If you have multiple 401(k) plans from previous employers, rolling them over into a single IRA can make it easier to manage your retirement funds and keep track of your investments.

How to roll over your 401(k) into an IRA

If you’ve decided that an IRA rollover is the right choice for you, there are a few different options for making the transfer:

Direct rollover: With a direct rollover, your 401(k) plan administrator sends the funds directly to your new IRA custodian. This is often the easiest and most straightforward method, as it minimizes the risk of mistakes or delays.

Indirect rollover: With an indirect rollover, you receive a distribution from your 401(k) plan, and then have 60 days to deposit the funds into an IRA. However, this method may pose risk if mistakes are made or delays result in taxes and penalties.

Trustee-to-trustee transfer: With a trustee-to-trustee transfer, your 401(k) plan administrator sends the funds directly to your new IRA custodian. This method is similar to a direct rollover, but it may be more suitable if you have a complex retirement plan or specific requirements.

Regardless of which method you choose, it’s important to follow the IRS rules for IRA rollovers to avoid unnecessary taxes and penalties. For example, if you choose the indirect rollover option, you must deposit the full amount of your 401(k) distribution into your new IRA within 60 days to avoid income taxes and penalties. If you miss the deadline, you may have to pay income taxes on the distribution, as well as a 10-percent early withdrawal penalty.

Questions about rolling your 401(k) over to a self-directed IRA? Talk to a knowledgeable IRA Counselor.