Key Benefits of Moving Retirement Funds into a Rollover IRA

I’m getting ready to help a family member roll over their retirement accounts from previous employment into a new, Rollover IRA account.

The benefits of doing this are:

1. Simplification – moving funds into one place so that they can be centrally managed.
2. More Investment Options – by doing this, they will no longer be limited to the handful of fund options offered in the 403(b), 401(a) and 457(b) plans they currently have. The investment options become virtually limitless.
3. Lower Investment Costs – by expanding the investment options, they will be able to select funds that have lower fund fees and expense ratios than what they are currently paying.
4. Rollover is Not Taxed – Assuming that the rollover is performed correctly (trustee-to-trustee transfer), this is not a taxable event.

Now, this individual is nearly 60 years old and will not need the funds for a number of years. Therefore, the IRS nuances surrounding early withdrawals will not apply, and they would not benefit from keeping the funds in the 457(b) for the penalty-free withdrawal benefit.

If you have funds in a 457(b) plan that you might want to access before turning 59 ½, I encourage you to read into penalty-free withdrawals and the associated rules.

If you’d like instruction on how to complete a rollover, how long you have to complete one, and how many you can do in one year, here is the IRS link.

Keep in mind that you can only roll over pre-tax funds into a Rollover IRA.

Example: Pre-Tax /Traditional 401k money –>Rollover IRA.

You would not be able to roll over Roth 401k funds into a Rollover IRA (and you wouldn’t want to, anyway). You could, however, roll Roth 401k funds into a Roth IRA.