Why You Should Roll Over Your Retirement Funds to an IRA

Wednesday, June 28, 2023

By Sarah Brenner, JD
Director of Retirement Education
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If you are like most American workers, you will change jobs many times during your lifetime. With a job change, you will have a decision to make. What should you do with the funds in your retirement plan? One option is to do a rollover to an IRA. An IRA rollover offers some big benefits.

Grow Your Retirement Savings

When you contributed to your employer’s plan, you made the smart decision to save for retirement. Rolling those funds over to an IRA will allow you to preserve those dollars for your retirement and even add to them in the future. You could keep your funds in an IRA and make IRA contributions or you could move the funds over to a future employer’s plan. Either way your retirement savings will remain intact and potentially grow.

No Tax Hit

It may be tempting to hold on to any funds distributed to you from your employer plan. If you do, there will likely be a tax bill. Most retirement plan funds are taxable when distributed. Even worse, if you are under age 59 ½ you may be hit with a 10% early distribution penalty, unless an exception applies. (The penalty doesn’t apply if you take out your funds following separation from service in the year you turn 55 or older, or 50 or older if a public safety employee.)

Investment Options

Changing jobs can be stressful and overwhelming. It may be tempting to just ignore your retirement savings and leave them in your former employer’s plan.  By taking this path of least resistance, you may be missing out. Your employer plan may offer some solid investment choices. However. by rolling over to an IRA you can take advantage of many more. The choices for IRA investments are almost limitless and you should be able to find some that most closely suit your needs.

How to Roll Over to an IRA

Rolling over to an IRA can offer many advantages, but everyone’s situation is different. Think carefully and weigh your options. If you do decide a rollover is for you, consider doing a direct rollover to an IRA instead of 60-day rollover. With a direct rollover your retirement funds can go right to your IRA. You avoid concerns about missing the 60-day deadline and you can skip any withholding requirements.

Don’t hesitate to consult a knowledgeable financial or tax advisor if you have questions. Your retirements savings are on the line. If you decide an IRA rollover is the right move for you, you will want to be sure the transaction is done properly.

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