Are you leaving your job and wondering what do with the assets that have accumulated in your retirement plan? Well, you have several options which include:
-Cashing your savings
-Retaining your former employer’s retirement plan
-Setting up a rollover account
While all of the above options are viable, their benefits vary. Cashing your savings for instance will give you cash at hand, but it will also mean that you pay hefty taxes.
You can opt to retain your old retirement account but what happens when you change jobs again? You would not want to be following up on numerous retirement accounts. Overall, setting up a rollover account will be the most favorable option.
What is an IRA rollover?
A rollover IRA (Individual Retirement Account) is a private retirement account that accepts money rolled over from another qualified retirement plan. Therefore, an IRA rollover involves transferring all your retirement assets from your previous retirement account to a new regular IRA.
Why should you consider an IRA Rollover?
IRA rollover is the easiest yet sometimes easily overlooked option for handling your retirement funds when leaving your job. Some of the benefits of an IRA rollover include:
1. Tax deferral
The money contributed into any retirement scheme is tax deferred. If you are retiring or moving into self-employment, it is not a good idea to cash your retirement savings, unless there is an urgent need for cash as cashed savings will be subject to federal and state taxes. An IRA rollover on the other hand will move all your assets into a new account where you can continue enjoying tax deferral and growing your assets further.
2. Increased Investment Opportunities
Most employees who have retirement plans such as the 401(k) have limited options for investment, chosen by the custodian. While these options may be somewhat sufficient, they are still limiting. An IRA rollover will expose you to a range of investment choices, where you can put your money in virtually any imaginable investment. In most cases, you will find that you can get an investment opportunity with a higher risk-reward with rollover IRA.
If you are changing jobs, it might be tedious to retain your old retirement account with your former employer and set up a new one with the new employer. An easier way is to rollover your assets into a single account where you can easily keep track of your assets. That way, you will only have one statement to look at, even if you constantly change jobs.
An IRA rollover is very easy to accomplish. Generally, any individual retirement account can accept rollover assets from an eligible retirement plan, even if it was set up for personal contributions. People without individual retirement accounts can still set up rollover IRAs with ease from banks and financial institutions.
Suffice to say, a rollover IRA is one of the means of securing your retirement, and the government is committed too; to ensuring that you save as much as you can on tax while saving for your retirement. With the new advantages being offered by the government on IRAs before tax day, the options for making the best of your retirement plans are increasing for instance:
-Workers with a retirement account are allowed to claim tax deductions on their contribution to traditional IRAs until the adjusted gross income is between $98,000 and $118,000 for couples and $61,000 and $71,000 for individuals: definitely an opportunity to defer more of your taxes.
–Roth IRA income limits will be increased by $2000 and you can make use of this to increase savings in your Roth IRA and enjoy the tax-free earnings and distribution upon retirement.
-Saver’s credit is available for employees saving in an IRA or 401(k) plan and whose annual general income is less than $61,000 for couples, $45,750 for household heads and $30,500 for singles. Notably, these amounts have been increased by between $500 and $1000 and the saver’s credit, worth 10, 20 or 50% of the retirement contributions is yet another way for low income earners to save more on taxes.
With the government keen on reducing the amount in tax paid by low income earners and increasing options for retirement plans, you are well on your way to saving a lot on taxes. Should you find that you earn more than the limit, you can still put your after tax dollars in a Roth IRA and make use of an IRA rollover to transfer these funds to your IRA.
Additionally there are self-directed IRAs and Gold IRAs which are extremely popular and financially advantageous options as well.