Fast Facts: What Is an IRA Rollover?

May 7th 2016

Factors to Consider

Individuals seeking to secure their retirement savings should consider the factors involved first. For example, an IRA often includes fees and expenses that may not exist with an employer-sponsored retirement plan, such as a 401(k). However, an IRA rollover may offer additional services to diversify funds and protection of assets from bankruptcy and creditors. Investors should consult with a financial adviser to determine if the costs associated with an IRA rollover are worth the transfer before moving funds.

Traditional vs. Roth IRA

Individuals seeking to rollover retirement savings from a 401(k), 403(b) or 457 plan must first determine if a Roth IRA or traditional IRA is the best choice. Both options help to preserve existing tax benefits. The primary difference between the two options involves how individuals pay income tax on the money rolled over into the IRA. With a Roth IRA, individuals pay taxes on the front end but are not required to pay taxes when the money is withdrawn during retirement. A traditional IRA operates in reverse, with income taxes due when the money is withdrawn. A financial adviser can help individuals evaluate the best option to secure their financial futures.

The Process

Once the IRA type is determined, individuals should contact the former employer and request a direct rollover distribution payable to the investment firm of choice. People should then choose investments that are tailored to their financial needs.

Conclusion

An IRA rollover involves moving retirement savings into an Individual Retirement Account. Many people opt to rollover an IRA for the tax-deferred savings and a broader choice of investment options. An IRA rollover is just one of many options available for retirement plans, but the cost-effective savings often make it a popular choice.

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