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Rollovers and transfers are two of the most popular methods to move money between banks. Rollovers and transfers are alike in many ways and only differ in certain situations. This article discusses rollover vs transfer and when it is best to use each process in the light of IRA.
Rollovers transfer retirement funds. “Rollover” is when you move an IRA into a 401(k). It considers transferring funds across brokerage accounts a rollover.
Rollovers are not taxable, unlike transfers, where you pay taxes on any gains or earnings that might have built up in your prior retirement account over time.
With rollovers, there’s no tax consequence because, technically, nothing happens when you move your money into a new retirement savings tool like an IRA or other type of investment portfolio (like stocks).
When you transfer funds from one IRA account to another, the money is moved directly to the new IRA custodian. This process is typically meant for a one-time transaction, such as changing custodians or moving your investments from one broker to another.
Rollovers transfer cash from one retirement plan to another inside or across companies. A transfer is a taxable move from one retirement plan to another, so it doesn’t qualify for any of the tax benefits that come with making a rollover.
To ensure you’re getting the most out of your investment, consider whether rolling over or transferring are better options for you—or even better yet: if doing both would work out best!
There are three main reasons you should transfer to a new 401(k) plan instead of rolling over your old one:
- It’s less expensive than a rollover transaction. While you can save money by rolling over your 401(k) balance into an IRA, the fees involved with transferring your plan balance mean that you may be better off keeping it at work. In addition to lower costs, no early withdrawal penalties are associated with transfers.
- Transfers are faster than rollovers; generally speaking, they take between two and four weeks once the paperwork has been appropriately submitted by both parties (the employer and employee). This means that if you want access to your funds right away—which would be problematic if they’re sitting in an IRA account somewhere else—transferring might be worth considering instead of doing a full rollover!
That 401k will remain with your previous job if you do nothing. Required minimum distributions must start after you reach age 70, and you can withdraw money from the account anytime. However, early withdrawals are subject to a penalty of 10%.
If you’re a low-earner, keep your 401k. Then, if it makes financial sense, you can roll your 401k into an IRA. If neither alternative appears tempting, leave the money where it is best for now, but revisit this decision in the future to see if it fits your needs.
Rollover vs transfer are the two processes that have some similarities and differences, which are well discussed above. A rollover is a retirement account transaction that provides tax-free funds to be transferred into another retirement account. On the other hand, a transfer allows you to move your money from one company’s plan (or IRA) into another company’s strategy.