Rollover
IRAs
are like traditional IRAs — your earnings grow
tax deferred,
and when you withdraw you pay tax at your regular
rate. But unlike a traditional IRA, which you build by making
annual contributions, a rollover IRA is funded with money that’s
already been put away in a qualified retirement plan, like a 401(k).
The rollover lets you move the money without owing any tax at
the time of the move, and the balance can continue to accumulate
tax-deferred earnings.
You might move the assets in your
401(k)
or other retirement plan into a rollover IRA if you retire, change
jobs, or when a plan is disbanded and the money is paid out. With
an IRA, you have more control over how the money is invested.
That means you also have more responsibility for meeting your
earnings targets and making withdrawal decisions.
Roth rollovers
In addition to rolling over a qualified retirement
plan into an IRA, you can roll over your
traditional
IRA
into a
Roth
IRA,
to take advantage of the tax-free income the Roth
provides. To qualify, however, your annual income must be less
than $100,000. You’ll owe the tax due on your earnings (and
on your contributions if you’re rolling over a deductible
IRA) in the year that you make the transfer, but you won't owe
a penalty.
The amount you’re rolling over doesn’t
count against the $100,000 limit, but that ceiling is the same
whether you are single or married.
