What's So Great About a Rollover

whats so great about a rollover gretchen stangier certified financial planner portland oregon

Changing jobs can be a tumultuous experience. Even under the best of circumstances, making a career move requires a series of tough decisions, not the least of which is what to do with the funds in your old employer-sponsored retirement plan.

Some people choose to roll over these funds into an Individual Retirement Account, and for good reason. Just over 28% of all retirement assets in the U.S. are held in IRAs, and just under 50% of traditional IRA owners funded all or part of their IRAs with a rollover. ¹ʾ²

Generally, you have three choices when it comes to handling the money in a former employer’s retirement account.

First, you can cash out of the account. However, if you choose to cash out, you will be required to pay ordinary income tax on the balance plus a 10% early withdrawal penalty if you are under age 59 ½.

Second, you may be able to leave the funds in your old plan.  But some plans have rules and restrictions regarding the money in the account.

Or third, you can roll the money into an IRA. Why do so many people choose an IRA rollover? Here are a few of the major benefits:

Rollovers may preserve the tax-favored status of your retirement money.  As long as your money is moved through a direct “trustee-to-trustee” transfer, you can avoid a taxable event.³ In a traditional IRA, your retirement savings will have the opportunity to grow tax-deferred until you begin taking distributions in retirement.

An IRA rollover may open up your investment choices. When you stick with your former employer’s retirement plan, you are typically limited to the investments offered by the plan. With an IRA, you may have a much broader range of choices, giving you greater control over how your assets are allocated.

Rollovers can make it easier to stay organized and maintain control. Some people change jobs several times during the course of their careers, leaving a trail of employer-sponsored retirement plans in their wake. By rolling these various accounts into a single IRA, you might make the process of managing the funds, rebalancing your portfolio, and adjusting your asset allocation easier.

An IRA rollover may make sense whether you’re leaving one job for another or retiring altogether. But how your assets should be allocated within the IRA will depend on your time horizon, risk tolerance and financial goals.

            ¹ 2014 Investment Company Factbook

² Distributions from traditional IRA and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59 ½ may be subject to a 10% federal income tax penalty. Generally, once you reach age 70 ½, you must begin taking required minimum distributions.

³ The information is this material is not intended as tax advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult a tax professional for specific information regarding your individual situation.

Copyright 2015 Faulkner Media Group