Simplify your financial planning and take charge of your future by rolling over funds from old retirement plans -- like a 401(k) from a former job -- into a single Individual Retirement Account, or IRA. Here's how.
Step 1: Understand IRAs Understand what an IRA is: An IRA is a special type of savings account that offers tax advantages for saving for retirement. The funds in your IRA can be invested in lots of ways -- stocks, bonds, mutual fund, annuities, and other assets. And the best part is that the assets in an IRA grow tax-deferred until you withdraw the money in retirement.
Step 2: Know what a rollover is Know what an IRA rollover is: the transfer of assets from an old or existing retirement savings plan -- such as a 401(k) -- to an Individual Retirement Account.
Step 3: Understand the benefits Understand the benefits of IRA rollovers. When you roll over assets that are sitting in old or inactive retirement accounts and consolidate them into a single IRA, you can get a complete picture of your retirement savings. This makes it easier to ensure that your investments are properly positioned and match your tolerance for risk and your time horizon for retirement.
Step 4: Appreciate the simplicity Appreciate the simplicity. Consolidating and creating a single IRA also simplifies recordkeeping -- making it easier to monitor your investments every step of the way and check that they’re keeping pace with your long-term financial goals.
Step 5: Take the plunge Ready to roll over? Open an IRA with a financial services provider and then contact the benefits department of the firm holding your old account and ask them for the form you’ll need. Or, you can make a direct transfer of your assets, also called a "trustee-to-trustee transfer," to avoid having taxes withheld from the rollover. This will ensure that all funds go to work for you immediately in your new IRA.
TIP: When opening an IRA, look for an investment company that doesn't charge annual or IRA maintenance fees.
Step 6: Consult an expert Consult an expert. You can select the investments to include in your new IRA, but you may want to have a financial advisor take a look at your entire financial picture to make sure your portfolio is balanced. A financial advisor will also help you understand the rules around rollovers. That kind of expertise can help you save big -- potentially leaving you even more money in the long run to do the things you love to do!
FACT: Over the same period of time, an IRA can earn more than a regular taxable savings account. Contributions and earnings aren't taxed until you withdraw them, so you have more money compounding.