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IRA's and 401(k) Rollovers

IRA's & 401(k) Rollovers

IRA's & 401(k) Rollovers

IRA's and qualified retirement plan rules are complex, and it is very easy to make costly unintentional mistakes if you don't fully understand the rules.

If you are considering rolling over a qualified retirement plan (401(k), 403(b), TSP, SEP or Simple IRA), contact us and help you determine what makes the most sense for you.

IRA's - Individual Retirement Accounts

ndividual retirement arrangements (or IRAs) provide a way for you to set aside money for your retirement—for living expenses and to pay for the things you want to do when you have the time to do them, such as traveling or learning new skills.

Like other retirement plans, IRAs offer tax advantages—specifically, the potential for tax-deferred or tax-free growth. Tax-deferred means you postpone taxes until you withdraw money later on. Tax-free means you owe no tax on your investment earnings at all, provided you follow the rules for taking the money out of the account. But in exchange for these tax benefits, there are certain restrictions.

Types of IRAs

When IRAs were first introduced, there was just one basic type, which was open to anyone with earned income. But since then, IRAs have evolved to include a number of variations:

Traditional IRA

There are two categories of tax-deferred traditional IRAs: deductible and nondeductible. If you qualify to deduct your contributions, you can subtract the amount you contribute when you file your tax return for the year, reducing the income tax you owe. If you don't qualify to deduct, the contribution is made with after-tax income.

Earnings on investments in a traditional IRA are tax-deferred for as long as they stay in your account. When you take money out—which you can do without penalty when you turn 59½, and are required to begin doing once you turn 72,—your withdrawal is considered regular income so you'll owe income tax on the earnings at your current rate. If you deducted your contribution, tax is due on your entire withdrawal. If you didn't, tax is due only on the portion that comes from earnings.

Roth IRA

Contributions to a Roth IRA are always made with after-tax income, but the earnings are tax-free if you follow the rules for withdrawals: You must be at least 59½ and your account must have been open at least five years. What's more, with a Roth IRA you're not required to withdraw your money at any age—you can pass the entire account on to your heirs if you choose. And you can continue to contribute to a Roth as long as you have earned income, no matter how old you are. Contribution levels for a Roth are the same as those for a traditional IRA. However, there are income restrictions associated with contributing to a Roth IRA. Both you and your spouse can each establish your own Roth IRAs.

More information on Traditional and Roth IRA's

Which Is Better: Traditional or Roth IRA?

The answer to this question will vary from person to person. Assuming you’re eligible to contribute to a deductible, traditional IRA or to a Roth IRA, here are some factors to consider:

Current- year tax benefits—Depending on your income and employment, contributions to a traditional IRA may be tax deductible, which reduces your taxable income each year you contribute. But if you don’t need that tax break now, a Roth IRA can give you more flexibility since you can withdraw your contributions at any time without paying taxes or fees—and you can withdraw your earnings tax-free if your account has been open at least five years and you are 59½ or older.

Likely future tax bracket—If you’re young and likely to be in a higher tax bracket when you retire, then a Roth IRA may make more sense. But if you’re likely to be in a lower tax bracket after you retire, a traditional IRA is usually the better choice. With a traditional IRA, however, you are subject to minimum required distributions when you reach age 72.

When considering whether to contribute to a traditional IRA or a Roth IRA, you should ask three questions:

  • What is your tax braket today and what will it likely be in retirement?
  • What deductions will you have when you take a distribution?
  • What is your exit strategy?


Qualified Plans

A qualified retirement plan is a retirement plan recognized by the IRS where investment income accumulates tax-deferred and meet the specifications laid out in Section 401(a) of the U.S. tax code. There are several types of plans, including defined-contribution plans and defined-benefit plans. Examples of defined contribution plans are: 401(k), 403(b), 457, TSP, SEP & Simple IRA.

Qualified Plans 101 - Watch this short video to get a better understanding of how qualified plans work.

Types of Retirement Plans

Contribution Limits - The basic limit on elective deferrals is $22,500 in 2023,  $20,500 in 2022, $19,500 in 2020 and 2021, and $19,000 in 2019, or 100% of the employee’s compensation, whichever is less. The elective deferral limit for SIMPLE plans is 100% of compensation or $15,500 in 2023, $14,000 in 2022, and $13,500 in 2020 and 2021. Catch-up contributions may also be allowed if the employee is age 50 or older.

If the employee's total contributions exceed the deferral limit, the difference is included in the employee's gross income.

Reasons to rollover your 401(k)

Reasons to rollover your 401(k)


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Reasons to rollover your 401(k)

Reasons to rollover your 401(k)


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