What is an IRA Rollover?

If you are planning to retire, you might already have an Individual Retirement Account (IRA), either a traditional IRA or a Roth IRA. Both types of IRA provide tax advantages, but there are restrictions on withdrawing money from the account before reaching age 59. A rollover IRA is a way to change the nature of your IRA investment without incurring early withdrawal penalties. For example, if you switch jobs, you might withdraw money from an employer-sponsored retirement plan and roll it over into a different retirement account with your new employer.

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Roth IRA vs. Traditional IRA

Roth IRAs are different from traditional IRAs in the details of their tax-exempt status. Traditional IRAs allow you to add funds to the account tax-free, but withdrawals are taxable. The funds have tax-deferred status until you withdraw them. Roth IRAs do not provide any tax benefits when you put money in, but withdrawals are not subject to taxes. Unlike traditional IRAs, owners of Roth IRAs are not required to take required minimum distributions after reaching a certain age.  

The best choice of fund is often the one that incurs income taxes when your income tax is at its lowest rate. If you are drawing a high salary now but plan on having a small income in retirement, a traditional IRA will save you more money. If your income goes up after you retire, a Roth IRA may be more profitable.

What to Do With an Old 401(k)

If you have an existing IRA that you are no longer contributing to, you might benefit by closing your old account and rolling it over from that plan into an IRA that better suits your current needs. This could reduce the paperwork, account passwords, and so on that you have to deal with. It could also make recordkeeping easier at tax time. Perhaps the clearest reasons to roll over an IRA are if the fund is no longer performing up to your expectation or if your investment priorities have shifted. If, as you approach retirement age, you decide to change from an aggressive growth mutual fund to a more conservative mutual fund, a rollover would help put your assets where you want them to be. If you are happy with the IRA, you could choose not to roll it over at all. 

How a Rollover IRA Works

If you make a withdrawal from your IRA, you have 60 days to deposit the money in another account to avoid any applicable early withdrawal penalties. To rollover your IRA, simply open an IRA account with a financial institution.

If you ask the plan administrator or financial institution that holds your old IRA to move money directly to your new IRA account, this is a direct rollover. Direct rollovers are not taxable.

If you cash out your old IRA and take the money yourself, you can carry out an indirect rollover. The financial institution that held the account will withhold money for taxes if you don’t roll it over. If you deposit that money into the new IRA account within 60 days (as required for indirect rollovers), you will not have to pay any tax on the funds. You will receive the withheld funds the following year with your tax refund once you file your tax return.

Rollover Your IRA With Donner’s Financial Services, Inc. | Retirement Planner Serving Port St. Lucie, Stuart, Jenson Beach, and other Surrounding Florida Communities.

Donner’s Financial Services, Inc. is a registered investment advisor serving the local community. He started Donner’s Financial Services as a better way to improve the quality of life for the people he served. William Donner takes the time to deeply understand your financial situation and your goals. He will show you how to build a solid foundation for your retirement. 

It is never too early or too late to start planning for your financial future and retirement. For guidance and practical assistance in setting up IRAs, insurance, and other investment opportunities, please contact Donner’s Financial Services, Inc. at 772.353.5414. We proudly serve Port St. Lucie and the nearby communities of Stuart, Jenson Beach, and more.


Are you interested in retirement planning?

Are you ready to schedule a consultation?