IRA Planning
Jun 19, 2018

Get to Know the Retirement Account Rollover

For most Americans preparing for retirement, much of their funds are stored in a company-sponsored retirement plan. Employees of the gas, oil, and chemical industry are no exception. However, there will almost certainly come a time when these savings have to move, either due to a change or end in employment. In these instances, you’ll have to perform a rollover and transfer the funds within that account to another. The typical account rollover sees funds from a retirement account, like 401k or 403b, moved into an Individual Retirement Account (IRA). Rollovers into new 401k or 403b accounts are also common for employees moving from one company to another. For retirees, however, the move to an IRA will be most relevant to them. Understanding how rollovers work and how to execute them properly is important when preparing for and transitioning into retirement. There are deadlines and tax implications that you should be aware of, so that you can make the most prudent choices with your retirement funds. Keep reading as we go over a few must-know aspects of the retirement account rollover.   When to Move As previously mentioned, an account rollover may be necessary when an employee moves to another company or when they leave their job, including when they retire. Typically, moves from company to company will see the employee simply rolling their account over to another similar account – one company’s 401k to another’s 401k, for instance. For individuals leaving a company to retire, they will also have to leave their company retirement plan and move to an individual account, either an IRA or a Roth IRA. Some companies may allow former employees to remain on their company plan, but these are exceptions. Check with your employer about their retirement policy, or speak with a retirement specialist to get a clearer idea of your options.
IRA vs. Roth IRA Often, retirees will wonder whether they should convert their funds into a traditional IRA or a Roth IRA. A Roth IRA serves the same purpose as its traditional counterpart, the only difference being that the funds within a Roth are taxed on deposit, while traditional IRAs are taxed upon withdrawal. Some companies may offer a Roth 401k or Roth 403b plan to their current employees. Because these too share the same tax implications as a Roth IRA, the funds here can be easily rolled over to a Roth IRA without any new taxation. However, if you have been taking advantage of a traditional retirement plan and now want to rollover to a Roth IRA, you’d need to pay taxes at the current income tax rate for all of those funds. In the wake of the 2017 tax overhaul, individual income tax rates are at a temporary low. Because of this, a Roth conversion may be an attractive prospect for soon-to-be retirees. However, these choices can’t be undone, so talk with your advisor and weigh your options before making your move. Rollover Right When you do choose to execute an account rollover, you’ll have to declare it. Doing so will give you a 60-day window to withdraw the funds from one account and move them to another without tax ramifications (unless there is a Roth conversion). If you miss this 60-day window, however, the funds you withdrew will be considered income and will be taxed accordingly, so make sure you meet that deadline. A common mistake people make when withdrawing retirement funds for a rollover is that they do so in their own name. Because of account regulations, doing this will cause you to suffer a 20 percent tax hit, which you’ll have to supplement out-of-pocket when you redeposit. Instead, have your bank make out the check to the custodian of your new account. Doing so will ensure you don’t suffer any avoidable taxation. Lastly, individuals doing a rollover must report the action to the IRS, even if they’re not being taxed on it. This is done through two forms: an IRS form 1099R, which says that you’ve withdrawn from your previous plan, and an IRS form 5498, which states that you executed a rollover. Make Smart Retirement Choices Your retirement accounts are just one of many things to think about when preparing to exit the workforce. This is milestone moment in your professional life, and it’s full of choices — many of which can only be made once. Make sure you do what is best for you. Whether you’re considering an account rollover or a health insurance policy, the Baird team is ready to help gas, oil and chemical professionals retire with confidence. We can also work with other professionals to help address tax & legal concerns.

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