When you invest your 401 (k) money in an IRA, you avoid immediate taxes and your retirement savings will continue to rise on a tax-deferred basis. An IRA can also give you more investment options than most corporate 401 (k) plans. You have more control over your money and can buy and sell anytime. A rollover is when you transfer funds from one eligible retirement plan to another, such as from a 401 (k) to a rollover IRA.
When transferring directly from an employer-sponsored plan to an IRA, the administrator of your plan will forward your distribution directly to the financial services provider where your rollover IRA takes place. Be sure to write your Schwab Rollover IRA account number on the check and deposit it within 60 days to avoid taxes and penalties. An asset transfer is when you tell your retirement account provider to transfer funds directly between two accounts of the same type, such as from one traditional IRA to another traditional IRA. It is often overshadowed by rollovers in the other direction 401 (k) on a rollover IRA, as they are more common.
When deciding whether or not to transfer your 401 (k) to the IRA, you should weigh the pros and cons of transferring from 401 (k) to the IRA to determine the option that protects your assets. As with a 401 (k) rollover, the easiest way to convert a traditional IRA to a 401 (k) is to request a direct transfer, which transfers the money from your IRA to your 401 (k) without it ever touching your hands. Even if your annual income is above the Roth IRA contribution thresholds, you can still convert your 401 (k) savings into a Roth IRA. That gets hairy when your IRA includes both money before and after tax, based on previous contributions and conversions.
If your employer sends you a rollover distribution check that can be paid out to you, you can deposit it directly into your rollover IRA. On the other hand, there are many areas where a traditional IRA has an advantage over a 401 (k), which is of course the reason why so many people include a 401 (k) in an IRA. Transferring your former employer’s 401 (k) to an IRA could make it more expensive to use a strategy to transfer money to a Roth IRA. In most cases, a new IRA offers more benefits in terms of fees, investment options, and tax savings than a 401 (k), but it’s important to know the pros and cons of transferring from 401 (k) to the IRA before you switch.
