IRA Rollover: What It Is And How It Works

IRA Rollover What It Is And How It Works main

It’s never too early to start thinking about your retirement plan. Everyone would like their time after retiring to be perfect and comfortable, and if you reach a certain age without ever before having thought about how to make this happen, you will definitely regret your recklessness and carelessness. If you want your golden years to be ideal, then you need to think about that in advance.

Speaking of golden years, did you know that gold can now also play an important role in your retirement plan? If you don’t really know what I am talking about, then you should check out Noble Gold IRA and get all the info that you need in order to understand this principle. Simply put, it is a means of diversifying your retirement portfolio with gold and other precious metals.

That’s enough about that for now, since we need to talk about the IRA rollover. These two topics are definitely closely connected, which is why I mentioned gold in the first place. Still, I don’t want to burden you with too much information at once. It’s always better to go one step at a time. Today, our step is to learn about the IRA rollover.

What Is It?

Simply put, a rollover Individual Retirement Account (IRA) is a way for you to transfer your existing money from a different retirement account, such as the 401k for example, to the IRA. One of the main reasons why the rollover process exists is because it allows you not to pay taxes on said money, just as long as you go through the whole procedure correctly.

In recent years, this has been a rather popular option, and a lot of people have already tried it. Their satisfaction with this method has led many more individuals to get informed about the whole process and eventually go through with it. As I have already said, the most important thing is to take all the correct steps and in order to do that, you need to know how the IRA rollover works.

IRA Rollover What It Is And How It Works pension

How Does It Work?

There are two possible ways in which this whole process can go. Let’s take the scenario of you already having an existing IRA first. This scenario is pretty simple and straightforward. You simply roll over the money to your IRA. There is a small catch, though. Doing it like this would make it difficult for you to roll your money back to, say, 401k should you want to do that later.

When you don’t have an existing IRA, or you don’t want to use it for these purposes due to the reasons mentioned above, then you need to open a completely new account. While there are a few different options, in this case it might best to go with the traditional IRA, because it is much simpler and comes with a really sweet benefit. I am talking about taxes, of course.

To put this simply, if you rollover your 401k to this account, you won’t have to pay any taxes on that amount until retirement. Keep in mind, however, that any withdrawals after your retirement are definitely taxed. Everyone will pay taxes one way or the other and this seems to be the less “painful” way to do it, at least in my opinion.

In addition to deciding on which account to open, you also need to decide where you want to open it. In other words, you need to choose an IRA provider. Choosing the right provider is rather important, because it allows you to try and keep the fees as low as possible, as well as to gain access to the right investments.

After you have decided on these two important things, it’s time to do the rollover correctly. It is important to be careful in this process, but if you have the right provider on your side, the whole process definitely won’t be that difficult. The provider will give you the info and the instructions for fulfilling a check or making a wire transfer.

When you receive those instructions, you should contact your former plan’s administrator and explain to them what they have to do. In other words, you forward your provider’s instructions to them. That’s about everything you need to do in order for this procedure to be done in a perfect manner. This might be made too simple here, but it’s definitely not that complicated either.

Direct Vs. Indirect

The process I have described above is called a direct rollover and it should be the option you go for. There is another option, though, called an indirect rollover. The difference is that, in the first case, the money never reaches your hands and it is instead directly transferred to your new account. The indirect process is when you actually withdraw the money and move it to the IRA on your own.

The reason why you should go for the direct option is because the indirect one opens you up to much more tax-related complications, and I am guessing that you don’t need that. When you find the right IRA provider and have professionals on your side, there will probably be no need to worry about this. They will act in your best interest and explain to you openly what the best option is. It never hurts to hear a few more opinions on this topic, but this is basically it.


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