Rolling over money from a k to an IRA allows you to gain access to more investment options than are typically available in workplace k accounts. You may also be able to avoid account management fees associated with some k plans. When you leave your job for any reason, you have the option to roll over a k to an IRA.
This involves opening an account with a broker or other financial institution and completing the paperwork with your k administrator to move your funds over.
Usually, any investments in your k will be sold. The money will then be deposited into your new account or you will receive a check that you must deposit into your IRA within 60 days to avoid early withdrawal penalties. If you do the process correctly, there should be few or no costs associated with rolling over a k to an IRA.
You should consider whether rolling over a k to an IRA is a better option than either leaving it invested when you leave your job or moving the money to your new employer's retirement plan. If you can avoid k management fees and gain access to investments with lower expense ratios, an IRA may be a cheaper account option. Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Investing Best Accounts. Stock Market Basics.
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Personal Finance. Your Practice. Popular Courses. Part Of. Know the k Rules. How k s Work. Roth k s: The Alternative. Other Types of k s. How Much Should You Contribute? Making Money With Your k. Getting Money From Your k. Rolling Over Your k. Retirement Planning K. Table of Contents Expand. More Investment Choices. Better Communication. Lower Fees and Costs. The Roth Option. Cash Incentives. Fewer Rules.
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We also considered the following factors when selecting the top places for your k rollover. In general, once you leave a job you have three choices for how to deal with your employer-sponsored retirement plan:. But this option is not typical for most individuals. How We Make Money. James Royal. Written by. Bankrate senior reporter James F. Royal, Ph. Edited By Brian Beers.
Edited by. Brian Beers. Brian Beers is the senior wealth editor at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Reviewed By Malcolm Ethridge. Reviewed by. Malcolm Ethridge. Share this page. Bankrate Logo Why you can trust Bankrate. Bankrate Logo Editorial Integrity. The exception to this is if you want to open a Roth IRA, which will require taxes paid on the distribution, unless your money was in a Roth k.
At tax time, the IRS will see you rolled over the entire retirement account and will refund you the amount that was withheld in taxes. Once the money is rolled over into your new IRA account, select your investments. Low-cost index mutual funds or ETFs often make sense for many people.
You might be tempted to pick individual stocks and bonds, but this is rarely the best approach for anyone but a professional investor. Lots of k s allocate money into target-date funds, which buy shares of other mutual funds with the goal of shifting investments automatically over time as you approach a specific date, such as retirement. If you like that approach, you likely can find a similar and perhaps less expensive target-date fund for your IRA at an online broker.
Doing a k rollover to an IRA offers perks that can include more diverse investment selections than a typical k plan, perhaps cheaper investments and lower account fees. It's also a way to keep your retirement funds organized and ensure you have easy access to them. And while some k plans pass account management fees along to the employees, many IRAs charge no account fees. In summary, it's a good way to save money, stay organized and make your money work harder.
If your ex-employer lets you, you can leave your k money where it is, but you likely can't ask HR any questions, and you may pay higher k fees as an ex-employee. Generally, there aren't any tax penalties associated with a k rollover, as long as the money goes straight from the old account to the new account.
Although this route may help you keep your financial life organized by having fewer accounts to keep track of, make sure your new k has investment options that are right for you and that you aren't incurring higher account fees. See our full list of the pros and cons of rolling over your k to an IRA. If you do a direct k rollover, there are typically no taxes to consider until you start withdrawing money in retirement.
If you do an indirect rollover see Step 3 above , you have 60 days from the date you receive the distribution from your old k to get it deposited into an IRA. If you take longer than 60 days, it becomes a taxable event.
Both of these are better than simply cashing out your old k. A rollover isn't for everybody. Leaving an old k alone can have benefits, too:. Your k is better protected from creditors. Generally you can borrow from your k , which isn't possible with an IRA though IRAs sometimes allow early withdrawals.
Or, you can open a rollover IRA that's a Roth - that's what you would do to roll money from a Roth k.
You're allowed to roll traditional k money to a rollover Roth IRA, but then you'd owe income tax on the money you rolled over.
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