When you leave your company, what happens to your retirement assets? Well, that’s up to you. Moving your assets into a rollover IRA can help you keep the same tax benefits, avoid possible penalties and gain more control of your money.
Whether retirement is around the corner or many years away, rolling your assets into an IRA offers you a number of benefits, including the ability to:
Keep tax advantages. Rollover IRAs can maintain the same tax benefits for your retirement plan assets. A Traditional IRA gives your money the potential to keep growing tax-deferred. A Roth IRA — like a Roth account in a 401(k) or 403(b) — can provide tax-free growth potential and tax-free withdrawals.
Avoid taxes and penalties. By not cashing out, you won’t have to pay taxes or withdrawal penalties.
Take control of your money. Rollover IRAs generally aren’t subject to as many rules and restrictions as retirement plans. You’ll have more access to your money.
Widen your investment choices. Instead of being limited to the options in your employer’s plan, rollover IRAs allow you to choose from a huge array of investments.
Combine retirement assets. If you still have accounts with previous employers, keeping track of the different rules and paperwork for each plan can be difficult. Use rollover IRAs to consolidate your retirement investments.
Keep contributing. You can make contributions to a rollover IRA. However, income limits may apply for Roth IRAs. The maximum amount is $6,500 for 2023. If you’re 50 or older, you can contribute up to $7,500 for 2023. Of course, you don’t have to roll over money to open an IRA.
Avoid RMDs. You can avoid required minimum distributions during your lifetime with a Roth IRA. With retirement plan accounts and traditional IRAs, you’re generally required to make annual withdrawals once you reach age 72.
Consider a direct rollover. The money should go directly from your old plan’s trustee to your rollover IRA’s trustee or custodian. Make sure the rollover funds don’t come to you to avoid mandatory income tax withholding.
Are you rolling into a traditional IRA or a Roth IRA? Both types of IRAs give you tax-advantaged growth potential. When you make withdrawals from traditional IRAs, the money is taxable. With Roth IRAs, you already paid taxes on money going in, but qualified withdrawals, including earnings, aren’t taxable.
Money in a Roth 401(k) or 403(b) account can be rolled into a Roth IRA. Non-Roth accounts can be rolled into a traditional IRA or Roth IRA. Rollovers to Roth IRAs from non-Roth accounts are taxable.
Measure the tax implications and penalties of staying tax-deferred and cashing out with the Spend it or save it calculator.
Find out how to start the rollover process to an American Funds IRA or how to initiate another transaction.
Use our sample portfolios as a guide to build your investment strategy.
Call an American Funds IRA Rollover Specialist at (800) 421-9923
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