Understanding IRA Rollovers

For people looking forward to a good retirement in the future, it is important to know about the different means of making their retirement plans work for them. One of the most important things to consider when dealing with retirement plans may include deciding on the option for a rollover. Understanding rollovers may prove to be very important especially for people who are always jumping form one job to another more often.

An IRA rollover simply means to move money placed into a retirement plan such as a 401 (k) into an IRA. You may need to know what to do with your company sponsored retirement plan especially if you are part of the changing work environment where more and more people are changing jobs with more frequency. The job stability of the past seems not to work well anymore and this means people having to deal with what to do with their company sponsored retirement plans once they change jobs.

When you decide to change jobs, there are two options available on what to do with your current company sponsored retirement plan. One option is to take the plan as a lump sum and will be given to you as cash. You can use this lump sum to invest in other attractive financial instruments or use for any other purpose. The disadvantage of this is that you may have to pay taxes and maybe some penalties for them which can eat a sizable amount of your retirement plan.

Another option is to have your company sponsored retirement plan rolled over into a traditional IRA. A roll over Ira can work to your advantage in that, you will be able to enjoy tax-deferred status on your retirement plan and avoid the penalties as well as taxes of premature availment. Contributions for a rollover IRA can be done in two ways. Either you can have it contributed to an existing IRA account or place it into a separate IRA. The latter would be more convenient since it may allow you to easily move the funds into another employer sponsored retirement plan in the future.

While some companies may offer to hold on to your retirement plan for you until you reach retirement age, knowing about these options may provide you with a means to see what would work best for you. Knowing your options gives you the ability to make the best choices for your future. Knowing about them a little too late can cost you and it may eat up a chunk of your retirement savings.

 

Posted by Ardent Editor on Feb 6 2008 in IRAs

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