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Investor Insights Blog|Maximizing Your Retirement Savings: Your Guide to IRA Rollovers When Leaving a Job

Managing Your Account

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

leaving job

When you leave a job, whether it’s by choice or due to circumstances beyond your control, there are many decisions you’ll need to make, including what to do with your employer-sponsored 401(k) plan. One option that many people choose is to roll their 401(k) over into an Individual Retirement Account (IRA).

What is an IRA rollover?

An IRA rollover is a process through which you can move your retirement funds from a 401(k) plan into an IRA. An IRA is a personal retirement account that you own and manage, rather than a plan that is provided by your employer. By rolling over your 401(k) into an IRA, you gain more control over your retirement funds, as well as potentially more investment options.

Why consider an IRA rollover?

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.


Can I roll over a 401(k) account into a self-directed IRA?

Yes. A self-directed IRA gives you the ability to diversify your portfolio with additional investments that are permitted by the IRS, in a tax-free or tax-deferred environment.


Is there a limit to the number of rollovers I can do a year?

You can complete one rollover per 12-month period. The 12-month period begins on the date you receive the funds/assets, not the date the funds/assets were sent to you from your IRA custodian.

If a second distribution is made during the 12-month period it will not be eligible for rollover. This means the distribution is a taxable event and is subject to the 10-percent penalty tax, if applicable. In addition, those funds cannot be validly deposited into your account as a rollover contribution. They will be treated as a regular contribution for the current year, which may result in an excess contribution.

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