I want to rollover to an IRA. What accounts do I need to open?

What is an IRA?

An I RA (Individual Retirement Account) empowers you to take charge of your retirement savings. It's a personal investment account that offers tax advantages and a wide range of investment options. Unlike employer-sponsored plans, you can open an IRA independently.
Choosing the Right IRA for Your Rollover
  • Traditional and Roth IRAs: These are the most common types of IRAs used for rollovers.
    • Traditional IRA
      • Traditional IRAs hold pre-tax funds
      • Tax-deferred growth: Your investments grow tax-free within the account, allowing your money to compound faster.  
      • Tax-deductible contributions (often): Depending on your income and whether you or your spouse have a workplace retirement plan, your contributions may be tax-deductible, reducing your current tax bill.  
      • Taxed in retirement: You'll pay taxes on withdrawals in retirement, typically at your then-current income tax rate.  
      • Rollover friendly: Traditional IRAs are ideal for rollovers from employer-sponsored plans like 401(k)s and 403(b)s, which usually hold pre-tax assets.  
      • Contribution limits: You can contribute up to $7,000 annually ($8,000 if you're 50 or older).
    • Roth IRA
      • Roth IRAs hold after-tax funds.
      • Tax-free withdrawals in retirement: While your contributions aren't tax-deductible, qualified withdrawals in retirement are completely tax-free. This can be a significant benefit if you expect to be in a higher tax bracket in retirement.  
      • Flexible access to contributions: You can withdraw your contributions at any time, tax-free and penalty-free. This provides valuable flexibility if you need access to your funds before retirement.  
      • Tax-free growth: Your investments grow tax-free within the account, just like a Traditional IRA.  
      • Ideal for Roth rollovers: Roth IRAs are designed to receive rollovers from Roth accounts in employer-sponsored plans like 401(k)s and 403(b)s.
      • Contribution limits: You can contribute up to $7,000 annually ($8,000 if you're 50 or older), provided your income falls within certain limits.

It's important to match your rollover funds to the correct IRA type!

  • Other IRA options: While less common for rollovers, other IRAs exist, such as spousal, SEP, and SIMPLE IRAs. These may be relevant depending on your specific circumstances.
    • SEP IRA: a retirement plan that allows business owners and the self-employed to contribute to their own and their employees' retirement savings
    • SIMPLE IRA: (Savings Incentive Match Plan for Employees) is a retirement plan that allows employees and their employers to contribute to traditional IRAs

Opening a new IRA: If you don't already have an IRA, we recommend opening BOTH Traditional and Roth accounts. This provides flexibility for future rollovers and contributions. In most cases, there are no fees to open or maintain these accounts, even with a zero balance.

The frequently asked questions, or FAQs, are intended to be helpful and to get you thinking in a more sophisticated manner about your account transfer and related issues. However, these are not meant for accounting, tax, finance, or legal advice, not intended to be exhaustive, and do not create any relationship or duty on our part to assist your particular situation. We offer no warranties on the accuracy or completeness of the information as there could be developments of any kinds, including, but not limited to, any changes in relevant laws and regulations.