Fundamentals of Rollover IRA

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Switching a job is quite regular these days, be it due to a better opportunity in a different company or even because of a job loss. In any case, if there is a change in employment, the rollover IRA plays a vital role as it is a retirement account which gives you flexibility to rollover a 401k to an account which is still tax deferred. Another important benefit of rollover IRA is that, you can then re-rollover your retirement money into a new jobs 401k plan if required in future. So you are free to put your tax deferred money in any retirement account which seems to be most beneficial to you.

However, to avail this, you should not merge the rollover IRA with any other retirement account as Roth IRA or a traditional IRA. As on combining these accounts with the rollover IRA will disable the option to rollover to 401k when you take on a new job. It is important to keep this as a completely different account as all retirement accounts are not as flexible as the Rollover IRA.

Also there is absolutely no limit on the amount that can be transferred into or out of rollover IRA account. Hence whatever amount you save in your 401k, you can transfer the same into your new IRA account and enjoy the appreciation and then again rollover into 401k of your new job as per your convenience.


With this freedom with your retirement account funds, you can choose the best available investment option for your savings. If you find the IRA account to be more lucrative than the 401k, you are free not to move your money in the new company's 401k. And again when in future you get into an organization offering better retirement plans, you can make your choice! So it is up to you how you derive the best returns with the flexibility you get with your retirement funds.

Remember it is essential to transfer the funds from your 401k directly into your new rollover IRA or else you may face tax penalties. Under any circumstances, if at all you have received the funds personally, then you have to deposit the whole amount of this retirement money in your new rollover IRA within 60 days. Failing to do so will make you entitled for a penalty of 10% of your retirement account plus all fees and taxes the IRS levies for people under 59 ½ who have used their tax deferred money.

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Occupation: Tax consultant
Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous Tax eBook “Stop donating your money to IRS” which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.
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