Sometimes, a life event or decision about your existing retirement strategy means you need to change how and where you invest your retirement dollars. Moving money directly from one retirement or individual retirement account (IRA) into another — called a rollover — may be a consideration. And, depending on how it’s done, the rollover may be tax-free. Below are reasons to consider a rollover, as well as things to think about before implementing one.
1. You’ve changed jobs
If you’ve moved from one employer to another and want all your 401(k), 403(b) or 457(b) retirement plan money in one place, or you want access to a wider choice of investment options, a rollover may be right for you.
2. You want to convert a traditional IRA to a Roth IRA
If you’re eligible, moving money from a traditional IRA into Roth IRA (called a Roth conversion) will allow you to pay taxes on that money now so you can withdraw the money tax-free later.
3. You want to upgrade investments or products
Life insurance companies are always developing new annuity products to adapt to clients’ evolving needs. If a new product better suits your needs, you can consider an IRC Section 1035 exchange of one annuity for another. It’s important to keep in mind, however, that before replacing your existing annuity contract, you should work with your financial professional and tax advisor to compare the costs and benefits of your existing contract against those of the proposed contract and consider any adverse consequences of the replacement. All aspects of the exchange should be considered, including, but not limited to, your age, life stage, liquidity need, investment horizon, risk tolerance, costs, surrender charges, rider costs, and different features and benefits between the two contracts. Exchanging your contract may be not be in your best interest, particularly if you’re an older investor.
4. You retire
When you retire, you may want to transfer money from your 401(k) or other workplace plan into an IRA or consider the purchase of an annuity so you can generate lifetime income payments.
5. You want to consolidate retirement accounts
If you have retirement funds at multiple previous employers, you may want them all together to make planning more efficient. You can consider rolling them all into one account, making it easier to manage a single, diversified portfolio and keep track of your holdings.
How do you initiate a rollover?
There are different ways to initiate a rollover, and each has different tax consequences.
- Direct rollover — If you’re rolling money from one retirement plan to another, you can ask your retirement plan or IRA administrator/trustee to make the payment directly to another retirement plan or to an IRA. Contact your plan administrator or trustee for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. This is a direct rollover; it is tax-free and is the easiest way to move money from one account into another.
- 60-day rollover — You can also roll money from your IRA or a retirement plan by having the money paid directly to you in the form of a check. You will then need to deposit that money into an IRA or a retirement plan within 60 days. Because taxes will be withheld from the money you take out of your IRA or retirement plan, you’ll have to use other funds if you want to roll over the full amount.
Please note the deadline is a strict 60 calendar days. If you miss the deadline, you may need to include the full retirement plan distribution amount in your taxable income. You should document the date you received the distribution and that you completed the rollover. You can only make one rollover from an IRA in a 12-month period. However, you may also make unlimited custodial trustee-to-trustee transfers, and depending on which you make, there are tax consequences if the rollover isn’t done properly. Be sure to consult with your tax advisor before making a rollover of any kind.
Before initiating a rollover, talk to your financial professional and tax advisor to make sure it’s in your best interest. Consider the tax consequences, if any, and ensure both accounts will allow a rollover.
This informational and educational content does not offer or constitute — and should not be relied upon — as financial, tax or legal advice. Your unique needs, goals and circumstances require and deserve the individualized attention of your own professionals, and Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates and associates do not provide tax or legal advice or services.
GE-3400591(01/21)(exp.01/23)
