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What Is a Reverse Rollover for Your 401k?

Money Girl explains what a reverse rollover is, who should consider one, and the 10 main pros and cons to keep in mind before pulling the trigger

By
Laura Adams, MBA
Episode #388

Listener Michael asks:

"When I left my company last year, I rolled over my old 401k into a traditional IRA. This week, I accepted a new job with a great company that offers a 401k with matching funds. Should I reverse rollover the funds from my IRA into my new 401k when I’m eligible to participate?"

In this episode, I’ll answer Michael’s great question by explaining what a reverse rollover is, who should consider one, and the 10 main pros and cons to keep in mind before pulling the trigger.

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What Is a Retirement Account Rollover?

If you’re a regular Money Girl blog reader or podcast listener, you’ve probably heard of a retirement account rollover. It’s when you withdraw assets or cash from one retirement plan and move some or all of it into another plan.

As long as you complete a rollover within 60 days, it isn’t taxable. But if you miss the deadline, watch out! You’ll have to pay income tax on any amounts that weren’t previously taxed, such as Roth distributions.

Plus, you typically also have to pay a 10% early withdrawal penalty if you’re younger than age 59½, unless you qualify for an exception. I’ll cover some penalty exceptions in a moment.

What Is a Reverse Rollover for Your 401k?

Rollovers are most commonly done after you leave a job and are no longer eligible to participate in the company’s retirement plan, just like what Michael mentioned in his question. Instead of just leaving money with your old employer, you can move it into an IRA that you control.

Doing the opposite - moving money from an IRA into your workplace retirement account - is known as a "reverse rollover." While retirement plans aren’t required to accept incoming rollovers, many do.

See also: 10 IRA Facts Everyone Should Know

5 Pros of Doing a Reverse Rollover

Whether you should do a reverse rollover depends on whether you’ll get more benefit from having all your money in a workplace plan, or spreading it out between a workplace plan and an IRA.

Retirement accounts come with different rules and benefits. Once you understand the main differences between an IRA and a typical workplace plan, you’ll know what’s best for your situation.

Here are 5 main pros for doing a reverse rollover by moving money from your IRA into a workplace retirement account:

Pro #1: Consolidating Accounts

If you’re like me, the idea of simplifying your financial life makes your heart sing!

If consolidating all or a majority of your retirement investments in a workplace plan will keep you more organized, that’s a terrific benefit. By moving your IRA funds into your 401k or 403b, you can keep an eye on all of your retirement money in one place.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a trusted and frequent source for the national media. Her book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show. 

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