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Rollover IRA

What is a Rollover IRA?

The Rollover IRA is a tax advantaged IRA account designed to receive retirement funds rolled over from an ex-employer’s retirement plan. The Rollover IRA allows funds to be transferred tax free and penalty free from other retirement plans and allows retirement funds already set aside to continue to grow tax deferred until retirement.

When you change jobs or retire you will need to decide what do to with the money you have accumulated in your 401k, 403b, 457, or Thrift Savings Plan. For many investors this represents a sizeable investment and it is crucial to make an informed decision.

Many investors believe it is advantageous to rollover their retirement plan from a previous employer to a Rollover IRA versus leaving their money in their ex-employer's retirement plan or transferring it into their new employer's retirement plan (such as a 401k). Below are the rollover options that are available to you when you retire or terminate your employment.

What are my rollover options when I change jobs or retire?

  1. Take the money out in Cash
    For most investors this is the worst option. Taking a distribution in cash has very serious tax consequences. Your previous employer is required to withhold 20% for federal taxes. The cash that you receive will be taxed as ordinary income. The 20% that is withheld will be used to pay the taxes you owe for your federal taxes. However, depending on your tax bracket you may owe more than the 20% that was withheld when you do your taxes for that year. In addition, you are likely to be penalized 10% if you are younger than age 59 ½. As you can see, this can be a major setback towards saving for your retirement.
  2. Leave the money with your old employer's retirement plan
    For many investors who are saving for their retirement, this may be a better decision than Option 1 since you will not be penalized or taxed, however there are some disadvantages. Many investors find it difficult to manage and organize their retirement accounts when they have several retirement plans at previous employers. As a result, investment performance can suffer if retirement accounts are not diversified properly. An even more important issue is most employer's retirement plans have a fairly limited number of mutual funds choices (usually only 10-15).
  3. Transfer the money into your new employer's retirement plan
    Most employers allow you to do a transfer into their retirement plan. Compared to Option 2 this avoids the potential problem of multiple retirement accounts at different employers and the difficulties of managing your investments and organizing them properly. As in Option 2 the same important issue still applies, as most employer sponsored retirement plans have a fairly limited number of mutual fund choices (usually 10-15).
  4. Transfer the money into a Rollover IRA
    For many investors transferring the assets they have accumulated to a Rollover IRA is their best option. The several are several advantages of transferring retirement assets into a Rollover IRA: increased control, greater organization, improved investment flexibility and investment advice.

Advantages of a Rollover IRA

  1. Control
    When the rollover process is complete, your retirement plan assets from your previous employer will be transferred to an IRA. Since you are the owner of an IRA, you have complete control versus being dependent upon the rules and policies of your former employer's retirement plan. By rolling over your account into an IRA will not have the potential problems seen with some 401k plans such as a limited number of investment options. Also, there are a number of other problems that can arise with your retirement plan should your employer have financial troubles and go into bankruptcy. Rolling over your retirement plan to an IRA eliminates these problems and puts you in a position to be in complete control of your retirement account.
  2. Investment Flexibility
    Your previous employer’s 401k plan probably had between 10-15 mutual funds to choose from. A rollover to an IRA will increase your investment options and will improve your investment flexibility. Within an IRA managed by a BCM financial advisor you can invest in stocks, bonds and over 10,000 mutual funds. At Beacon Capital Management Advisors, we believe that over the long term greater investment flexibility may lead to improved performance through better diversification and increased investment selection.
  3. Investment Advice
    Are you receiving guidance from a financial professional with selecting the appropriate investments in your 401k? Probably not. This is perhaps the greatest advantage of a rollover to an IRA. If you opened an IRA rollover account, a BCM financial advisor would help you select a diversified investment portfolio based on your age, time horizon and risk tolerance.

IRA Information

Information about IRAs for individual investors and IRAs for the self employed and small businesses. Learn more about the IRA.


How Can BCM Help You?

Beacon Capital Management Advisors is experienced in helping individual investors and small businesses save for their retirement and we welcome the opportunity for you to speak to a BCM Advisor to learn more about the Rollover IRA services we provide to our clients. BCM is registered in 50 States and is an Accredited Business of the Better Business Bureau since 2004. Complete the form below and a BCM Advisor will promptly respond to your inquiry.

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*The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

*Information contained in these sections merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.