Personal Finance Retirement
Written by Jean Folger and Jasmine Suarez
- What is a rollover IRA?
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- A rollover IRA is a tax-advantaged account that accepts funds from your former 401(k) or other workplace retirement plan.
- Establishing a rollover IRA allows you to avoid the taxes and penalties that normally come with a 401(k) withdrawal.
- In rolling over funds, it's important to observe certain transfer procedures and deadlines to avoid any tax consequences.
- Learn how to roll over a 401(k).
If you have an employer-sponsored plan like a 401(k), you might wonder what happens to your money when you leave the job — either for a new gig or to work on your own.
A rollover IRA is one alternative. It could be a smart choice if you're looking for more investment options, lower fees, and significant tax benefits.
What is a rollover IRA?
A rollover IRA is an account that allows you to transfer a former employer-sponsored retirement plan into another IRA. Most rollovers happen when people leave a job and want to transfer funds from their 401(k) or 403(b) account into an IRA, but it can also apply to most any pension or workplace plan.
When you roll over your IRA, you avoid early withdrawal penalties (if you're under 59 ½) and maintain the tax-deferred status of your assets. That means they'll continue to grow in the account free of income tax.
What's more, you'll likely end up with a broader range of investment options and lower fees than you had with the 401(k).
Any type of IRA can be a rollover IRA. You can set up a new account, or use an IRA you already own. If it's the latter, for this one deposit you aren't bound by the usual annual IRA contribution limits: You can invest the total amount of your old account.
Jean Folger has 15+ years of experience as a financial writer covering real estate, investing, active trading, retirement planning, and retiring abroad. She is co-founder of PowerZone Trading, a company that has provided programming, consulting, and strategy development services to active traders and investors since 2004. Previously, Jean was a real estate broker, an English teacher, and a trip leader for an adventure travel company.
Senior Editor, Personal Finance Insider
Jasmine was a senior editor at Insider where she led a team at Personal Finance Insider, focusing on explainers, how-tos, and rounds-ups meant to help readers better understand personal finance, investing, and the economy.Her team tackled projects including:• Women of Means, a series about women taking control of their finances.• Better, Smarter, Faster, a series that reveals the impactful choices you can make with your money to set yourself up to pursue your passions and fulfill big life goals.• Master Your Money, a yearlong guide for millennials on how to take control of their finances.• Rethinking Retirement, an editorial collection with stories that will inspire and provide the foundation for planning a different type of future than the 9-5 life allows.• The Road to Home, a comprehensive guide to buying your first house.She also worked cross-functionally with the video team at Insider to develop and build PFI's YouTube channel.Before joining Insider, she was a senior editor at NextAdvisor, Time magazine's personal-finance brand launched in partnership with Red Ventures. Before that, she was an editor at Credit Karma.
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