If you’re changing jobs or retiring, you have an important decision to make—what to do with the retirement plan savings you’ve accumulated in your former employer’s 401(k) plan, 403(b) plan, or governmental 457(b) plan.
Whether you’ve been saving for one year or 20 years, you’ll want to preserve and continue growing your savings so you have adequate income in retirement. You can do that – and avoid immediate taxation on your savings – by keeping your savings in a tax-qualified retirement account.
You have a few options available to you. In most 401(k) plans you can leave your account right where it is with your former employer, or you can roll it over to a new employer’s plan, if you have one. There are benefits and considerations to both options. When you’re comparing options, be sure to also consider rolling over your account to an Individual Retirement Account (IRA).
Benefits of Rolling Over to an IRA
One of the benefits of an IRA is that it is your account and is not associated with any employer. This means you have total control over your savings and investments. With an IRA, you’ll have more flexibility than you would have in a workplace retirement plan.
- If you roll over to a self-directed IRA, you will have a broad choice of investment options to choose from, including alternative investments (e.g., private equity, real estate, limited liability companies) that may better suit your interests and investment goals.
- You can continue to contribute to your IRA whenever you choose – up to the annual contribution limit each year ($6,000 for 2019, $7,000 if you’re age 50 or older).
- If you have multiple accounts from former employers, you can use your IRA to consolidate your retirement savings.
- You can withdraw money from your IRA at any time, which can be especially helpful for retirement income planning purposes. (Note that like qualified retirement plans, IRAs are subject to a 10% early distribution tax if you take a taxable withdrawal before age 59½.)
The right option for your retirement savings will depend on your situation and your savings objectives. Ideally, you’ll want a tax-deferred vehicle that provides the investment and payout options you need to accomplish your retirement income goals. When comparing options, you’ll also want to pay attention to fees and other services and features that matter to you. Tax advisors and investment professionals can help you analyze options, based on your specific needs and objectives.
How to Roll Over Plan Assets to an IRA
If you decide to roll over your workplace savings to an IRA and have chosen an IRA provider, here are the steps involved.
Step 1: Open an IRA – Use the IRA provider’s forms and instructions to establish an IRA account. You can generally find this information on the IRA provider’s website. To open an IRA, you’ll need to provide your name, address, phone number, birth date, Social Security number, and marital status. You may also be asked to name a beneficiary for your IRA and provide the identifying information for your beneficiary. You will also need to review the IRA Account Agreement and Disclosures, and sign the account opening documents.
Step 2: Choose a Funding Option – If you are ready to initiate a rollover, select this funding option during the account opening process. You will also need to complete a Rollover form to provide the necessary employer plan account information and money transfer instructions to your IRA provider. This may include the name, address, and phone number of your former employer or the plan’s recordkeeper, and your plan account number.
Step 3: Initiate the Rollover – Your IRA custodian may submit your rollover request to your former employer or the plan’s recordkeeper on your behalf. Regardless of whether this service is offered, you will need to take steps to initiate the distribution and rollover from your retirement plan account. You may be able to initiate the rollover online through the website portal offered by the plan’s recordkeeper. You will need to provide the name, address, phone number, and account information for your IRA custodian, as well as money transfer instructions. Your former employer or a customer care representative for the plan recordkeeper can help guide you through the steps you need to take to move your account from your former employer’s plan to your IRA.
Step 4: Select Investments for your IRA – As part of the IRA rollover process, you select how you want to invest your IRA assets. Your IRA custodian will provide you with a Purchase Authorization form or other method to facilitate investing your savings.
For more information
Visit Mainstar Trust to find out more about rolling over retirement plan assets to an IRA. To open a self-directed IRA with Mainstar Trust, you can access the account opening instructions here.
If you have any questions, please contact the Mainstar Trust team at 1-800-521-9897 or customerservice@mainstartrust.com.