The initials “IRA” in the term IRA Rollover stand for Individual Retirement Account. The money in a Traditional IRA is money that has never been taxed. Therefore, the money taxed when it gets withdrawn. Money in a Roth IRA was taxed before it went into the Roth IRA. As a result, when it’s withdrawn, all the money (including the growth) is tax free.
So, what is an IRA Rollover?
This is the name of the process when money gets transferred from a 401(k) or retirement plan at work into your own IRA or Rollover IRA. If the 401(k) or retirement plan money was pre-tax, where the money was not taxed on the initial contribution, the money would be rolled into a Traditional IRA or Rollover IRA.
There are some finer details in the differences between a Traditional and Rollover IRA. But, for most situations, they’re just about the same. If the money in the 401(k) is after-tax or Roth, then it would be rolled into a Roth IRA.
How To Rollover IRA
Doing an IRA Rollover is generally very easy, even though it can seem like a high level process.
Firstly, you should have an IRA set up. Either a Traditional or Roth IRA works. However, it depends if the money in the current retirement plan was contributed pre-tax (Traditional) or after-tax (Roth).
Second, to initiate the rollover from the 401(k) or retirement plan, typically you can just call the 401k or retirement plan provider. They will process the rollover directly over the phone. They may even send physical forms to fill out. These forms would initiate the rollover.
Overall, the rollover process is very simple. Any qualified Investment Manager or CERTIFIED FINANCIAL PLANNER™ could help walk you through the steps.
Individual Retirement Account Rollover Rules
Why should you do an IRA Rollover or Roth IRA conversion?
Most 401(k) plans charge additional costs for basic investment options, which in an IRA would be eliminated if you’re managing the money yourself. A workplace 401(k) or retirement plan is also typically limited to only a couple dozen investment options vs in an IRA where you can invest in anything and everything.
If you hire an Investment Manager or CERTIFIED FINANCIAL PLANNER™ to help manage your money, there will be their additional management fee. However, a good Investment Manager or CFP® should be able to add more value to your money. This will make up for that fee, with better management of your money.