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Benefits of an IRA Rollover

How an IRA Rollover can simplify your retirement planning.


Whenever you terminate employment after participating in a workplace retirement plan, you will have the opportunity to create a rollover IRA. A rollover IRA is an important part of any retirement plan, since a failure to take advantage could cause several negative tax implications.

What is a Rollover IRA?

A rollover IRA is identical to a regular IRA (traditional IRA) except that the source of the money is not annual contributions. Instead, the money that goes into a rollover IRA is money from a previous retirement plan, such as a 401(k) plan. Although you are permitted to rollover your 401(k) into an existing contributory IRA, you may not combine regular IRAs and Roth IRAs.

IRA Rollover Benefit 1 - Continued Tax Deferral

One big advantage of an IRA rollover is the continuation of the tax-deferred treatment you had at your workplace retirement account. Furthermore, no tax is owed on a properly executed rollover, although it is reportable transaction to the IRS.

IRA Rollover Benefit 2 - Increased Investment Options

Within a 401(k) plan, your investment options are limited to the choices provided to you by your plan custodian and your employer. Often, these choices are sufficient. Periodically, they are extensive. But with a rollover IRA, you can choose to put your money in virtually any mainstream investment imaginable.

IRA Rollover Benefit 3 - Simplification

Instead of juggling a number of former workplace retirement accounts as you switch jobs over your career, consistently rolling over your plans to a single rollover IRA reduces complexity. You can look at one account statement and see the balance, recent performance, and investment selections of most of your retirement savings.

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