Is a Rollover IRA Right for You – Rolling Your Way to Retirement Is a Possibility
Retirement is approaching. Before you can think about relaxing under the sun or chasing the grandkids, you have to make some significant financial decisions.
- Do you take a lump sum or pension?
- How do you manage your current Savings Plan or 401k?
In many situations, you’ll want to rollover these assets into a traditional IRA. This isn’t a taxable event, which means you do not have to pay taxes on these funds. That’s because you’re moving the money from one institution to another without receiving any payment. The same applies to your Savings Plan and 401k.
Most of the time, these investment vehicles will include mutual funds and, in some cases, company stock. If you do own company stock, you’ll need to consider net unrealized appreciation, or NUA.
Let’s break down the entire process and what you can expect so you are always compliant.
Roll Your Retirement Plan or Savings into an IRA – It’s Easy
When you move your savings or other retirement accounts into an IRA, the process is easy as long as you understand the rules. Let’s take a look at some of the options you have.
The Better Option – Roll the Funds into a Traditional IRA
The most common choice for most people is opening a traditional IRA. This is another type of retirement savings vehicle. It offers some pretty lucrative investment strategies (and you can invest the way you want to for the most part, whether that is oil and gas or in other securities).
To be frank, this is a big decision you’ll need to make. After working for all of these years, you deserve to make the right decision for your future. It’s always beneficial to work with a seasoned financial professional.
Rolling your funds over makes good financial sense. It is one of the easiest ways for you to reduce more of your taxes and continue to see your retirement account grow. Here’s why they are so beneficial:
- You have more control over your investments.
- You can consolidate all of your retirement accounts from multiple employers into one.
- You can choose the investments that you make and have far more control over where you put your money.
- You still have all of the flexibility you need for making withdrawals when and how you want to.
With your assets being more accessible to you, you can live retirement your way — go and do what you want to do. At the same time, you’re still benefiting from having a tax-deferred savings method. That’s a powerful tool for all investors.
Are You Able to Make Your Move Now?
When considering these options, be sure to know the details of your existing plan. The process starts with distribution. If you are allowed to take a distribution, you are able to make these financial decisions.
The key is that different types of accounts have different requirements and opportunities for distribution. For example, some employer-sponsored plans will have a trigger event such as termination of your job or reaching retirement age. Others include death and disability. When these types of events happen, you’re able to take money from your account.
Now that you’re able to make that decision to take a distribution, the question is — where should you put your money? It’s up to you to make this decision, though having your financial advisor by your side can most certainly take some of the pressure off!
When choosing any decision, your goals are to consider whether the method helps your money to remain tax-deferred and to understand what the tax consequences are. For example, if you choose a traditional IRA, you’ll avoid paying taxes right now, in most cases, because the funds are moving from one financial institution to the next. This is done with a check made payable to that organization or with a wire transfer — the money is not in your hands.
That’s the best option. If you choose to have the funds paid to you directly, then the current plan is required to hold 20 percent of those funds as taxable. You then have to pay taxes on those funds, in some cases, especially if you are under the age of 59 ½. To avoid this, you have to use an indirect rollover and ensure you meet specific guidelines.
You Have Plenty of Options
There’s a solution that’s right for most people. Here’s a quick look at a few of the options you can choose from for your distribution:
Direct Rollover into a Traditional IRA: Easy, fast, and you can move the funds from your employer-sponsored plan into your new IRA quickly and maintain your tax-deferred status.
Leave It: You can elect to leave the funds in the employer’s plan. This is generally only an option if you have $5,000 in the account.
Roth IRA: You can convert your funds into a Roth IRA, but you may have to pay taxes on them.
Combining Accounts: If you have a traditional IRA outside of your employer’s plan, you can combine these accounts.
What’s Right for You?
This is a big decision, therefore it is probably best to consult with someone prior to make sure it aligns with your retirement strategy and goals. With over 27 years of experience in the IRA Rollover area along with being a Chartered Retirement Planning Counselor, I am well-equipped to assist you with this decision. Please contact me at 504-322-4956 for further information.
Investment advice offered through Musso Retirement Advisors, a DBA of 360 Wealth Management, LLC a registered Investment Advisor.
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