Rolling Over Your IRA

Written by Catherine Rein (last updated May 12, 2009)

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.

Author Bio

Catherine Rein


Insuring Your Home

There are three main components to home insurance: the cost to replace the dwelling, the cost to replace your ...

Discover More

Tapping Into Your Home's Equity

There are many options for tapping into your home's equity. Banks offer several kinds of home-equity financing options ...

Discover More

What is a Derivative?

A derivative is a risk-shifting agreement, which is valued based on the underlying asset. The underlying asset could be a ...

Discover More
More Money Tips

What is a Hedge Fund?

A hedge fund is an investment fund that seeks to limit risk by hedging their investments using a variety of methods, most ...

Discover More

Investing in Art

Art investment is a whole other realm to business and one that requires a certain level of taste and shrewdness. Becoming ...

Discover More

What Makes a Good Investment?

Good investments are often hard to figure out; it's hard to decide what's good and what's bad and what will best benefit ...

Discover More

If you would like to add an image to your comment (not an avatar, but an image to help in making the point of your comment), include the characters [{fig}] (all 7 characters, in the sequence shown) in your comment text. You’ll be prompted to upload your image when you submit the comment. Maximum image size is 6Mpixels. Images larger than 600px wide or 1000px tall will be reduced. Up to three images may be included in a comment. All images are subject to review. Commenting privileges may be curtailed if inappropriate images are posted.

What is 5 + 0?

There are currently no comments for this tip. (Be the first to leave your comment—just use the simple form above!)