People may often wonder what happens to their retirement money when they move jobs, or decide that their current retirement plan is not the right plan for them. The answer to that question is that they are able to roll their funds over into another account called a rollover IRA. A rollover IRA is an account that is much like other IRA accounts. There are funds being saved for retirement in the account, and one of the only differences is that the account is being funded by rolling over money from an old retirement plan at an old employer instead of coming out of a paycheck. The purpose of a rollover IRA is to maintain a tax-deferred status of the money that you have been saving for many years.

This is one of the most popular options of getting your funds if you leave your current employer, or if you decide to change retirement plans. It is popular because the other options have a lot of different consequences that come along with them. If you do have a 401(k) with a former employer, and you decide to get a rollover IRA, you can later move the funds to a new employer’s retirement plan if you decide you like their plan better. If you decide to get a rollover IRA, the amount of money than an employee can roll over is not capped. If you decide to cash out your previous account, there can be huge penalties that will be taxed to you by the IRS. If you decide to move your funds to your new employer’s 401(k) account, you will be subject to the investment choices that they have provided. With a rollover IRA, you will be protected from taxes, and you will be able to have more choices available to you if you want to invest your money.

It is important to get your funds from your old retirement account to your rollover IRA as soon as possible. You will want to initiate what is called a direct rollover. This is when your former employer’s plan administrator will move the assets directly into the rollover IRA account without you ever seeing the money. If you get the money transferred to you, and then deposit the money into an IRA yourself, you will be subject to have 20% of the assets withheld by the IRS. If you do have an indirect rollover, which is when you take the funds out of the account yourself, you must put the funds into a rollover IRA within 60 days. With the indirect rollover, 20% of the money will be withheld, and it cannot be recovered until you file your annual tax return. If you do not follow all the rules of a rollover IRA, you can face taxes, which is usually 10% of the assets. If you are not 59 and 1/2, you will also have to pay early withdrawal penalties.

It is best to use caution when getting a rollover IRA. Compared to 401(k) accounts from an employer, there are many more potential investment opportunities. For someone who has never invested their retirement funds, they could be overwhelmed, and they could lose a lot of their money. It is important to get a financial advisor when investing your funds from your rollover IRA account.

When getting your funds from one account to a rollover IRA account, make sure to follow all of the rules in order to avoid taxes and other penalties. You can take advantage of the benefits that come along with a rollover IRA if you understand how they work, and how to acquire one of these accounts.