Sometimes it makes sense to roll over your 401(k) plan. "Rolling over" your investment funds means transferring them from your company's 401(k) into a traditional individual retirement account (IRA) or a Roth IRA. People often do this when they change jobs because IRAs tend to offer more investment options than 401(k) plans do. If you've got a traditional 401(k) plan, you can roll it over into a traditional IRA tax-free. You can also roll it over into a Roth IRA, although this move would require you to pay taxes, as it would be considered a conversion.
Have a Roth 401(k)? You can roll it over into a Roth IRA without paying taxes. (Although the IRS says you must begin to take withdrawals on a Roth 401(k) at 70 years and six months, the same as a traditional 401(k), there's nothing to stop you from rolling it over at that point into a regular Roth IRA.) The only move that cannot be made is rolling over your Roth 401(k) into a traditional IRA. One other qualifier: Any rollover into a Roth IRA, whether from a traditional 401(k) or a Roth 401(k), can only occur if your adjusted gross income is below a certain amount in the rollover tax year [sources: Investopedia, Vanguard].
Author's Note: 5 Differences Between Roth and Traditional 401(k)s
I understand how Roth and traditional 401(k)s work, but beats me how anyone can decide which is preferable for their particular situation. It's a good thing I'm married to an accountant. I'll stick to words, and he can tackle the numbers.
- Anderson, Tom. "Your 401(k): When It Was Invented and Why." LearnVest. July 3, 2013. (Nov. 15, 2014) http://www.learnvest.com/knowledge-center/your-401k-when-it-was-invented-and-why/
- CNN. "What's the difference between Roth and traditional IRAs?" (Nov. 14, 2014) http://money.cnn.com/retirement/guide/IRA_Basics.moneymag/index2.htm
- Fidelity. "Roth or traditional IRA or 401(k)?" Feb. 25, 2014. (Nov. 14, 2014) https://www.fidelity.com/viewpoints/personal-finance/spender-or-saver
- Holsopple, Scott. "Retirement Basics: IRA or 401(k)?" U.S. News & World Report. Feb. 6, 2013. (Nov. 14, 2014) http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2013/02/06/retirement-basics-ira-or-401k
- Internal Revenue Service. "401(k) Plans." Oct. 14, 2014. (Nov. 15, 2014) http://www.irs.gov/Retirement-Plans/401%28k%29-Plans
- Internal Revenue Service. "Roth Comparison Chart." Oct. 23, 2014. (Nov. 15, 2014) http://www.irs.gov/Retirement-Plans/Roth-Comparison-Chart
- Investopedia. "IRA Rollover." (Nov. 15, 2014) http://www.investopedia.com/terms/i/ira-rollover.asp
- Kane, Libby. "Retirement Roulette: What's the Difference Between an IRA and a 401(k)?" LearnVest. March 9, 2012. (Nov. 14, 2014) http://www.learnvest.com/knowledge-center/retirement-roulette-whats-the-difference-between-an-ira-and-a401k/
- Steiner, Sheyna. "Roth IRA, 401(k): What's the difference?" Bankrate. March 9, 2010. (Nov. 14, 2014) http://www.bankrate.com/finance/retirement/roth-ira-401-k-what-s-the-difference.aspx
- Vanguard. "Pick a type of IRA for your rollover." (Nov. 15, 2014) https://investor.vanguard.com/401k-rollover/options
HowStuffWorks explains why you might need to go to the Social Security office. Newborn needs SS number, replacement card needed, etc.