If you are switching employers, you have the option to roll over your 401K into an IRA plan. Watch as we Make Cents of IRA Rollovers.

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Making Cents of IRA Rollovers

Individual Retirement Accounts (IRAs) are a popular way for people to save money for their retirement. But, what happens when you change jobs, retire or simply want to transfer your IRA into another investment account? It’s called an IRA rollover, and it can be a smart financial move if you do it wisely.

An IRA rollover is when you transfer the money from one IRA account to another, typically from one broker or custodian to another. It can also be done when you transfer money from a 401(k) account into an IRA.

There are two types of IRA rollovers – direct and indirect. Direct rollovers are done when the money is transferred electronically between accounts. The funds are sent directly to the new IRA custodian or broker without you actually receiving the money. An indirect rollover is when a check is issued to you for the full amount of your IRA balance, and you have 60 days to deposit the funds into the new IRA account. However, if you fail to deposit the full amount of the distribution into the new IRA within 60 days, you will be subject to penalties and taxes.

It is important to carefully consider the potential tax consequences of an IRA rollover. If it is done correctly, you won’t be taxed on the amount that gets moved from one account to another. But, if you take the money out of the original IRA account before the age of 59½, you will be subject to a 10% early withdrawal penalty, in addition to any taxes owed.

When considering an IRA rollover, it is important to choose the right investment account for your needs. Factors to consider include fees and expenses, investment options, contribution limits, and other services offered by the custodian or broker.

Additionally, it is recommended that you consult with a financial advisor before making any significant investment decisions. This can help you avoid costly mistakes and make informed decisions.

In conclusion, an IRA rollover can be a valuable tool to help you manage your retirement savings. However, it is crucial to understand the tax implications and to choose the right investment account for your needs. With proper planning and the guidance of a financial professional, an IRA rollover can help you stay on track to reach your retirement goals.