Explanation of the difference between regular IRAs and “rollover” IRAs
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DISCLAIMER: This video is only helpful hints and education. It is not specific tax, legal or investment advice. Before considering acting on anything you see in this video, first consult with your tax, legal or investment advisor. While the information expressed in this video is believed to be accurate, neither Andy Panko, CFP®, RICP®, EA nor Andy Panko EMC LLC make any representations to its accuracy….(read more)
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An Individual retirement account (IRA) and a Rollover IRA are both retirement savings vehicles, but they have some important differences. An IRA is a tax-advantaged account that allows you to save for retirement. A Rollover IRA is a type of IRA that allows you to move funds from another retirement account, such as a 401(k), into an IRA.
The main difference between an IRA and a Rollover IRA is the way the funds are contributed. With an IRA, you can contribute funds to the account on an annual basis. The maximum contribution limit for 2020 is $6,000, or $7,000 if you’re age 50 or older. With a Rollover IRA, you can move funds from an existing retirement account into the Rollover IRA. This allows you to take advantage of the tax benefits of an IRA without having to start from scratch.
Another key difference between an IRA and a Rollover IRA is the types of investments you can hold. With an IRA, you can invest in a variety of assets, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs). With a Rollover IRA, you’re limited to the investments offered in the 401(k) you’re rolling over.
Finally, the tax treatment of contributions and withdrawals is different for an IRA and a Rollover IRA. Contributions to an IRA are typically made with pre-tax income, meaning you won’t be taxed on the money until you withdraw it in retirement. With a Rollover IRA, you’ll typically be taxed on the funds when they’re withdrawn.
In summary, an IRA and a Rollover IRA are both retirement savings vehicles, but they have some important differences. An IRA allows you to contribute funds on an annual basis, while a Rollover IRA allows you to move funds from an existing retirement account. Additionally, the types of investments you can hold and the tax treatment of contributions and withdrawals are different for each type of account.
So, is this statement false? " If you move money from a defined contribution pension plan or a defined benefit pension plan into a rollover IRA and do not comingle the funds it retains some of the ERSIA protections" I have done both, 401k and lump sum pension into separate rollover accounts. Is that a waste of time? In addition to what you covered here, https://www.youtube.com/watch?v=wIC7EMPEgME, I was told there were some protections against being sued.
I am so happy that now when I read these titles I KNOW the answer without watching/reviewing most of the content these days (after undergoing a steep learning curve the past few years). I appreciate these Andy, but am getting less and less in need of them (and that means you and others like you are doing your job well as teachers). Thanks.
Why would you want to roll money from a rollover IRA back into a new employer 401(k)? Just curious what the benefit might be.
Excellent!
Great explanation. Are the rules the same for Roth IRA, you can rollover to a Roth TSP or Roth 401k?
Thank you for explaining IRA complexity in a clear way, Andy Panko.