Combine All Your Nest Eggs into One Basket: The IRA Rollover

By Diana Palmieri

Chances are, you’ve worked at different places over the years, started up a 401(k) here and an IRA there, so you now have several different nest eggs scattered about. Why not consolidate these assets and take control? This is where the IRA rollover can come into play.

What is an IRA rollover?  I am sure you all may have heard the term before but are not really sure what it’s all about.  An IRA rollover is a tax-deferred vehicle used to transfer assets from a former employer plan or another IRA.  Most importantly, it is owned and self directed by you. 

Weeks after you leave an old job, there will usually be some forms mailed to you from your former employer giving you options to withdraw your old retirement funds.  You may not even get to the part about an IRA rollover because you see the “lump sum” option.  Oh, and it can be very tempting to take out that lump sum.  But be aware this lump sum will count as ordinary income, and if you are under the age of 59 ½, an additional 10 percent federal penalty will be added on.  Furthermore, you could be thrown into another tax bracket.  Before you know it, you could find that your lump sum has decreased dramatically.  The rollover of these funds will avoid all of the aforementioned and, at the same time, allow you to keep the tax-deferred status.  Then, when you retire years down the road, you can start drawing from your IRA and spread out your tax liability on your terms. 

Getting back to the self-directed part, if you open up a rollover IRA at a brokerage firm, you have several choices as to what to invest in your IRA.  Most employer plans are very limited and will only allow you to purchase and hold mutual funds.  Don’t get me wrong, mutual funds are not a bad thing, but with your new rollover IRA, you can spread out and buy individual stocks; individual bonds; and, in some instances, options.  Most clients really like the idea of having those different investment options to choose from. Also something to note is cost to maintain you plan.  Some employer plans can charge as much as $20 per quarter for maintenance fees, while an IRA at a typical brokerage firm on average is $35 annually. 

The most important thing about rolling out a retirement plan to a new IRA is to ensure it’s done properly.  Seek the advice of a financial adviser and also your tax preparer.  I think you will find once you get all of these “nest eggs” into one retirement basket it is easier to project your future needs as well as allocate and rebalance your funds as you see fit.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties.  You are encouraged to seek tax or legal advice from an independent professional advisory.

Diana Palmieri is dually registered with Vanderbilt Securities LLC and H Beck Inc., which are unaffiliated. Securities offered through Vanderbilt Securities LLC, member SIPC/FINRA/MSRB. 

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