Combining Your Retirement Accounts

It can get confusing to keep track of how much money you have and how it is invested when you have multiple retirement accounts. For the most separate, you can combine them. But keep in mind that certain restrictions may apply .

Combining at least some of your accounts is a good way to simplify your retirement plan. For exemplify, you will have fewer accounts to take required minimum distributions from once you reach old age 70 1/2. And having fewer accounts should mean you ‘re paying less in fees overall .

Key Takeaways

  • Accounts that you’ve contributed to with pre-tax money can be combined in one traditional IRA; this process is called a “rollover.”
  • A Roth conversion occurs when you roll over a pre-tax retirement account into a Roth account that’s funded with after-tax money.
  • You can roll over or combine a Roth 401(k) into a Roth IRA, because both are funded with after-tax contributions.
  • You can avoid tax penalties if these moves are made directly from one account to another. Other rules apply as well.

What Is Your Account Type ?

In most cases, accounts that function in a like way can easily be combined without any tax penalty. The first seven items in the number below are all fund with pre-tax money ; when you withdraw money for retirement, it will be taxed. Roth accounts are funded with post-tax money .

Retirement Account Types

  1. IRA
  2. 401(k)
  3. 403(b)
  4. 457 plan
  5. SIMPLE IRA
  6. SEP-IRA
  7. Keogh
  8. Pension plan
  9. Roth IRA
  10. Roth 401(k). This is also called a “designated Roth account.”

IRA Rollovers

If you have a few types of accounts from the first gear seven items in the list, they can be combined into one IRA report. This march of combining accounts into an IRA is called an ” IRA rollover. ”

The Roth IRA and Roth 401 ( thousand ) routine similarly. They ‘re both fund with after-tax money ; when you withdraw money, it wo n’t be taxed ampere long as you follow the IRS ‘s rules. If you have both a Roth IRA and a Roth 401 ( kilobyte ) at retirement, your Roth 401 ( kelvin ) can be rolled over into your Roth IRA .

What if your pension design, which is number eight on the tilt, offers you the ability to take a lump-sum distribution ? then that entire amount can normally be rolled over into your IRA .

Roth Conversions

The IRS permits you to roll over any of the first seven types of accounts into a Roth IRA in a serve known as a “ Roth conversion. ” When you do a Roth conversion, the total that ‘s converted is included as taxable income on your tax return that year. That means you could end up owing a big sum of money to the IRS .

Before you carry out a Roth conversion, you should decide whether it makes sense for you. Do you expect to be in a higher tax bracket when you begin taking the funds ? Do you want to pass along all or character of the account tax-exempt to a benefactive role ? You may besides want to consult with a fiscal planner .

How Can You Avoid Tax Penalties ?

When combining accounts, you should make indisputable the assets are being moved in a rollover. That means it ‘s a steer transfer of assets from one report into another .

For example, let ‘s say you are moving an old 401 ( kilobyte ) design into your IRA. You will then fill out paperwork or an on-line form that directs your old 401 ( thousand ) design to make the check collectible directly to the fresh custodian for the benefit of you .

If your IRA is at Charles Schwab and your mention is Jane Smith, then your 401 ( k ) provider would make the check collectible to “ Charles Schwab for the profit of Jane Smith. ”

You wo n’t always see that check, and that ‘s a good thing. It means the rollover was done the correct manner, and you ‘ve avoided a 20 % tax penalty. But if the custodian of the explanation mails you a check made out to you, you can calm spare yourself a tax penalty if you act cursorily .

You have 60 days to deposit this check into the IRA. Keep this in mind : It will have 20 % disengage for federal income tax. You must besides deposit the total that was withdrawn for income tax ; you can get that money back from the IRS when you next file a tax return. If you do n’t deposit that entire summarize of money—the amount of the check and the sum that was taken out for income tax—and you are under historic period 59 1/2, you may besides be submit to a 10 % early withdrawal punishment .

Keep These Restrictions in Mind

There are some restrictions to be mindful of when making an account rollover.

You Can only Make One IRA Rollover Per year

You can make merely one rollover between IRAs in any 12-month period. If you have a batch of IRAs to consolidate, you ‘ll have to spread the rollovers out. This meter restriction applies to traditional IRAs, Roth IRAs, SIMPLE IRAs, and SEP-IRAs .

This rule does not apply to :

  • Conversions of traditional IRAs to Roth IRAs
  • Rollovers from any other type of retirement plan to an IRA
  • Rollovers from an IRA to a different type of retirement plan
  • Rollovers between non-IRA retirement plans

What if you carry out a moment IRA rollover before 12 months have passed ? The IRS will require you to include as megascopic income on your tax tax return any previously tax-exempt amounts distributed from an IRA. And those amounts may be subject to a 10 % early-withdrawal penalty tax .

You Ca n’t Move a current plan

While you are calm working for a company that has a retirement bill that you—and hopefully the caller —are contributing to, you can not move that retirement account anywhere else. however, many company-sponsored plans allow you to move outside retirement accounts into your current design .

Check with your 401 ( thousand ) plan supplier to see whether you can roll over 401 ( k ) mho from former employers or existing IRAs into your current workplace plan .

Before making such a motivate, think about the fees you pay for your stream 401 ( kilobyte ) and the choice of the investment options. You may be better off leaving the funds where they are or moving them to an IRA that gives you more investment choices .

biennial Wait for SIMPLE IRAs

You must wait two years after establishing a SIMPLE IRA before you can combine it with a different type of retirement history, either by rolling funds out of it or into it. however, you do not have to wait two years before combining it with another SIMPLE IRA .

Roth IRAs and Roth 401 ( kilobyte ) south Are Limited

You may not roll over a Roth IRA into any other type of retirement account. A Roth 401 ( thousand ) can be rolled over only into a Roth IRA or another Roth 401 ( kilobyte ) .

Spouses Ca n’t Combine Accounts

Spouses ca n’t combine retirement accounts while they ‘re both alive. A retirement report must be titled in one person ’ randomness name .

After you or your spouse dies, the dead person person ‘s IRA can be rolled over into the surviving spouse ’ sulfur IRA. Your spouse must be the benefactive role of your IRA, unless they have signed a release giving you permission to name person else. The same rule does not apply to a 401 ( kilobyte ) history .

Note

The IRS has a Rollover Chart that explains which types of retirement accounts can and can not be rolled over into the other types of accounts. It besides outlines the restrictions that apply.

frequently Asked Questions ( FAQs )

Can you rollover multiple 401(k) plans into an IRA?

A rollover IRA can accept funds from as many 401 ( k ) plans as you have to roll over. The only exception is for Roth 401 ( kelvin ) plans ; since those plans use after-tax dollars, they ca n’t be rolled over into a pre-tax account.

Can you combine 401(k) accounts in another 401(k) plan?

Whether or not you can combine 401 ( kelvin ) accounts into another 401 ( kelvin ) plan depends on the 401 ( kelvin ) plan you hope to transfer the funds into. Some plans are more flexible about transferring funds from other plans. You can check with the human resources department at your workplace for more information about what your 401 ( potassium ) plan does and does n’t allow .

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