As soon as you leave an employer or reach retirement, there is a decision to make with regards to your contributions to the company retirement plan. Generally, there are four options for what to do with your contributions: transfer the contributions to your next employer’s plan, move into a qualified retirement account, leave the contributions in the company plan, or cash out.
The term “rollover” refers to the process of moving your retirement savings account from your workplace retirement plan, such as a 401(k) or profit-sharing plan, into an Individual Retirement Account (IRA) without penalty. An IRA, in a nutshell, is a trust or custodial account created for the exclusive benefit of an individual or their beneficiaries.
In order to set up a Rollover IRA in Arlington Heights, an individual must first open an IRA or successor trustee through a financial institution. After creating an Individual Retirement Account, your former employer must be given instructions on where to send (rollover) to your newly established or pre-existing IRA.
You avoid the expensive state and federal taxes associated with cashing out by transferring your retirement contributions into an IRA and gain access to a wider variety of investment options than available under a company plan. By enlisting the services of a financial planner and rolling over into an IRA, you are capable of tailoring your investment strategy to meet your unique needs, rather than having your retirement savings controlled by a former employer.
In a Rollover IRA, you make it possible for your contributions to go on growing with a tax-advantaged status as you plan for retirement. Generally, a Rollover IRA provides an opportunity to lower your investment costs and gain greater flexibility and control of your retirement contributions.
There are two types of IRA accounts that suit the vast majority of individual investors: a Traditional IRA, a Roth IRA, or a combination of both. The essential difference between these two retirement accounts is the way your contributions are taxed by the government. If you decide to rollover into a Traditional IRA, your deposits and investment gains in that account are not taxed until you choose to withdraw funds. In a Roth IRA, however, taxes are applied during the time of deposit, allowing for tax-free withdrawals. Moving a 401(k) rollover into a Roth IRA has special considerations including tax liability, and seeking advice in this regard is particularly important. For more information about IRA Rollovers, go here.
Planning for retirement can be a confusing and difficult process. Opening an IRA has many benefits for the individual investor, but additionally requires compliance with numerous regulations. There are many decisions to make when it comes to planning your future and preparing for retirement.
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