Rolling Over Your IRA

New federal laws make it very attractive to save your money in an IRA account and to leave it there until retirement. Tax-free retirement investment amounts have been recently increased and there are even "catch-up" allowances for workers older than 55 who are trying to save more before retirement. On the downside, there are also more penalties for workers who take out their money before retirement. Follow these steps to rollover old 401(k) accounts into new IRAs:

1. Research IRA Options. Nearly every brokerage and bank accepts IRA deposits of any amount. You should look into online brokerages, they allow more control and offer inexpensive trading capabilities. There are two main types of IRAs, Traditional and Roth IRAs. The Roth IRA gives the investor the ability to take the money out for certain expenses without penalty. There are income guidelines and investment maximums associated with both types of IRA, be sure to get the advice of a tax professional.
2. Contact Your Former Employer. After you've opened a rollover IRA account, contact your former employer and ask for a 401k rollover form. You should fill it out and include your new brokerage and account information. Be sure to arrange for a direct rollover to avoid the 20% tax withholding.
3. Fund Your New IRA. Most brokerages will take care of the rest. In some cases, they may mail you a check for the balance of your old account. The check will be made out to your new brokerage "for benefit of" your name. You should mail it off to your new brokerage within 60 days.

You need to remember to deposit your check in the rollover IRA within 60 days to avoid fees and penalties. To meet the 60-day rule, start counting on the day after you receive the check and include the day you deposit the money into your IRA.

Early withdrawal of 401k investments is taxed at the worker's marginal tax rate and a 10% penalty is also tacked on. A better option, if emergency cash is desperately needed, is to take a loan from a 401k. The interest rates are lower and the interest paid goes back into the account. If you leave the job, the entire loan must be paid in full or it will be treated as an early distribution subject to the taxes and penalties mentioned earlier.