Compared to the mid-twentieth century, employees no longer stay at a job their entire life. Where a pension and one company used to be common, now switching jobs every year or so is the norm. Such job-hopping creates a more dynamic situation for your retirement.Pensions have faded away and been replaced by self-managed retirement. When employees switch jobs, they have a few options of what they can do with their retirement. Rolling it over into another account is one option available to them.In this article, we’ll talk about where you can roll your retirement to when you leave your job. Plus, we have a handy IRA rollover chart that lays it all out for you.
One of the most common reasons for rolling over a retirement account is to move it out of a former employer’s plan. In that case, a 401(k) is rolled into an IRA at another brokerage of your choosing. There are a few benefits to doing this:In addition to leaving an employer, there are other reasons to roll over. You might have two or more retirement plans at your previous employer. A rollover offers the chance to consolidate them into one plan, which will provide easier management of those funds.Finally, you might not have any reason to roll funds over into another account. If your previous employer’s plan offers great diversification and low fees, it might be difficult to compete with that. You could even do an IRA to 401k reverse rollover.
Let’s answer the question of where you can roll your retirement account to. Depending on the account type, you can roll into a number of retirement account types. The IRS has very specific rollover guidelines.The most restrictive rollovers are the Roth IRA, which can only be rolled into another Roth IRA, and the designated Roth account, which can only roll into another designated Roth account and a Roth IRA.Note that each plan listed below can be rolled to the same plan at a different brokerage. For example, a Roth IRA can be rolled into another Roth IRA.Note, rolling from a pre-tax account to a Roth account may have tax implications. Also, to roll into some plans (such as a 401k or defined benefit plan, the plan must allow it).
Here’s a handy IRA rollover chart that could help make things clear:
Once the rollover process starts, you’ll have 60 days to complete it. Otherwise, the money is considered a withdrawal and subject to income taxes. Also, if you are under 59.5 years of age, those funds will incur a 10% early withdrawal penalty.Have any check made out to the new plan and not you. Send the check directly to the new plan. Don’t forget to report the rollover on your income taxes as a non-taxable distribution.
If you aren’t sure which brokerage to roll your new plan to, we’ve identified the top brokerages in our article, The Best Traditional and Roth IRA Accounts of 2020. Some of the names listed you’ll already be familiar with, such as Vanguard, Fidelity, Schwab, and Betterment. Some names you may not have heard of. You really can’t go wrong with any of them.Rolling over a retirement plan is not difficult or time-consuming. Just follow both plan administrators’ instructions and you should have a hassle-free rollover experience.