Question about Rollover IRA

[Bamafan3723]

What exactly is a Rollover IRA? What can be done with it? Does it have to be converted to a ROTH IRA or 401K? My girlfriend has a Rollover IRA and she is wondering what exactly she should do with the funds that are in there. I have a 401K through my work but I don't really know anything about what a Rollover IRA is.

Maybe one of the financial gurus of OS can chime in and explain this to me so I can understand better.

[p_rushing]

Re: Question about Rollover IRA

It's a traditional IRA that came from a previous employer when changing jobs. You may be able to move into a Roth IRA, but you may owe taxes. You may also be able to roll them into a plan at the current employer.

I would talk to someone and see if there are any reasons to move it to save more, but generally you don't need to do anything with it.

Sent from my SM-G950U using Tapatalk

[ImTellinTim]

Re: Question about Rollover IRA

A couple general terms:

Traditional IRA - Individual Retirement Account where contributions are deductible when you do your taxes. Withdrawals when you retire are taxable.

Roth IRA - Individual Retirement Account where contributions are not deductible when you do your taxes. Withdrawals when you retire are non-taxable.

401K - This is just an Individual Retirement Account that is employer sponsored (they may or may not make contributions), named for the section of the tax code they were created under. You decide if it's Traditional or Roth if your company offers this option. If you pick Traditional, the amount you contribute is automatically deducted from the amount you pay taxes on by the payroll department. This is one of the reasons why you have different income amounts on your W-2 in the different boxes.

It is important to note here that if you take any kind of early withdrawals from these accounts, you pay any taxes owed that you haven't paid on contributions to a Traditional IRA PLUS A 10% PENALTY. With a Roth, I believe it's just the penalty, but I'm not a financial expert, so don't hold me to that.

A Rollover IRA is simply what they call a Individual Retirement Plan that you put your 401K money into when you leave employment in order to avoid paying any owed taxes and penalties. Leaving employment and having them pay you out your 401K money without putting it into another Individual Retirement Plan is considered an early withdrawal. You have a time period in order to complete the transaction without incurring the penalty.

So to answer your original question, your girlfriend's Rollover IRA is just an account she has. She can pull the money out and pay taxes/penalty if she needs the money and is willing to take the hit. She can let it sit there until she's 60 then pull it out without penalty. Or she can make new contributions to it. She can see if she can move it into a current 401K she has with a new employer. Whatever she wants. She doesn't necessarily need to do anything with it.

Hope that helps. If you need help deciding what to do, talk to a financial adviser.

[Speedy]

Re: Question about Rollover IRA

The primary options most people do is either cash it out, play with it in the market, or do nothing. It would be wise to look at the YTD (year-to-date) rate of return and see how much it has gone up/down, even look at previous years and see how much the market has added to it (outside of personal/employer contributions).

For a personal story, I had a 401k from a previous employer that I did honestly did nothing with that has since doubled in 5 years...while I've several friends that had similar funds in their 401k from that same employer (we all started around the same time, same job, same salary) that cashed theirs out for <1/4 of what I currently have.