Rolling Your Retirement Plan Into An IRA
Once you’ve left your employer, you have the option of directly rolling over part or all of the eligible distribution from your 401(k), 403(b), or 457 governmental plan to a traditional IRA. Rolling over your retirement plan allows your savings to keep accumulating tax deferred.
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A traditional IRA may offer you a broader selection of investment options than your current or new employer-sponsored retirement plan. IRAs allow you to invest in most types of savings and investments, including CDs/share certificates, Treasury securities, mutual funds, and individual stocks and bonds. Check with your financial institution to see which investment options they offer. MECE Credit Union offers IRA Share Accounts and IRA Certificates of Deposits.
If you have an existing IRA, consolidating your retirement savings with one provider streamlines your paperwork, makes it easier to develop and maintain your investment plan, and simplifies your required minimum distribution calculations when you reach age 70½.
A traditional IRA may also offer you and your beneficiaries more flexible and tax-favored distribution options than your employer retirement plan. For instance, an employer plan may require non-spouse beneficiaries to take their inherited money in a lump sum that is immediately taxable, with no option to have it distributed over their lifetimes.
If you are still working, you may make new contributions to a traditional IRA until age 70½. Traditional IRAs, however, don’t offer loans, as may any new employer plan you have.
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Rolling over your employer plan savings to a traditional IRA also gives you the option, if you’re eligible, to convert your savings to a Roth IRA.
You may convert all or part of your traditional IRA to a Roth IRA if you’re a single taxpayer or married taxpayer filing jointly, and your modified adjusted gross income in the year you convert doesn’t exceed $100,000. Please note, you’ll owe taxes at your regular income tax rate on the taxable amount you convert.
You may withdraw earnings tax free from a Roth IRA if you meet the specified conditions. If you are still working a Roth IRA will also allow you to make contributions past age 70½. You are not required to begin taking minimum distributions at age 70½ as you are with a traditional IRA.
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