Find out how to move assets between retirement accounts tax free.
You probably know that you’re typically not allowed to take money out of a retirement account, like a 401(k) or a traditional IRA, without paying taxes or an early withdrawal penalty if you’re younger than age 59½. But I’ll tell you how to use a rollover to move money or property between most types of retirement accounts so you avoid those pesky taxes and penalties.
What is an IRA Rollover?
A rollover is a tax-free transfer of cash or other assets from one retirement account to another. The most common reason for doing a rollover is when you leave a job and want to take your retirement funds with you instead of leaving them in your old employer’s account. You can’t roll over funds from a workplace plan while you’re still employed—you have to wait until you say goodbye to your old job. Here are 2 examples:
Sally decides to leave her teaching job to relocate out of state. Though she still has control over her 403(b) retirement funds, she wants more investment options than the plan allows. She decides to roll over the account balance into a traditional IRA where she can choose from thousands of investments and continue to make monthly contributions.
John is an attorney who leaves his company and starts working for a new firm. After 60 days he’s eligible to participate in the firm’s 401(k) and he’s really impressed with it. He decides to roll over funds from his old 401(k) directly into his new 401(k).
Both of these situations can take advantage of a rollover so money is transferred without triggering any taxes or early withdrawal penalties.