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How to Rollover Your 401k to an IRA
Posted By Miranda Marquit On 03/08/2012 @ 12:11 pm In Retirement | 7 Comments
One of the ways you can improve your retirement investing is to roll your 401k over to an IRA. A rollover, if done right, can help you put your money into an account that sometimes offers more investment options than your company 401k plan offers.
If you are leaving your current job, some kind of a rollover might be necessary. You can roll a 401k from your old job to a 401k plan at your new job. However, if you aren’t sure what your options will be with a new job, it can be worth it to consider an IRA. Unless the current 401k plan is a great plan, you are likely to find that you are better off rolling over your account. However, you should consider your individual situation, and consult a professional, before making such a weighty decision.
It’s usually fairly simple to do a rollover, especially if you are transferring the money from a 401k to a traditional IRA. Here are the steps to follow as you roll your 401k to an IRA:
You can also rollover your 401k to a Roth IRA. However, there are additional considerations associated with a Roth IRA. Income restrictions on rollovers to Roth IRA accounts were lifted in 2010, but there are still issues to consider, such as the fact that hardship distributions can’t be rolled over.
For the most part, your biggest issue is likely to be taxes. A Roth IRA has a different tax advantage; you pay taxes on your income up front, but the money grows tax-free. A 401k, though, is a tax-deferred account, so the money is contributed before you pay taxes. The result is that when you accomplish a rollover, you will need to make up for the fact that you have received the tax benefit. In some cases, the taxes you pay outweigh the benefits of rolling your 401k over to a Roth IRA.
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