IRAs & Rollovers


There are two primary types of IRAs – Traditional and Roth. Each offers different tax advantages and a wide variety of investment choices.

You can choose one or both depending on your tax situation and income, but all IRAs together are subject to the combined contribution limit.

Traditional IRAs may allow you to receive a tax deduction equal to your contribution. The deductibility of a contribution is subject to income limitations depending on if you or your spouse are covered by a retirement plan at work. Distributions are taxed as ordinary income when withdrawn.

Roth IRAs are always funded with after-tax contributions and you will not receive a tax deduction. Your income must be under certain limits to be able to contribute. Qualified distributions are tax-free when withdrawn.

You can make contributions throughout the year or in a lump sum by the contribution deadline which is usually April 15th, or the actual tax return date, in the next year. Contribution rules are moving targets, so call us before executing a contribution plan.

What should you do with an old 401(k)?

Three primary options exist that you should consider when deciding what action to take with your 401(k) from a previous employer, and apply to both traditional IRAs and 401(k)s.

1. Leave your old 401(k) with your previous employer

The first option is to take no action at all. If the old plan is low cost with excelent investment choices, you can simply stay put. The issue with this option is you can typically do better on fees and investment choices on your own depending on where you roll your money into a new separately managed account.

Another circumstance of concern with leaving your money in the old 401(k) is your previous employer may have the right to kick you out of their sponsored plan, and move your money into an IRA in your name.

2. Roll your old 401(k) into your new Employer's plan

We recommend participating in a 401(k) whenever one is offered, and rolling your money into the plan provided by your new employer is an option worth considering. Plans typically have rules governing this type of rollover, so you will need to check with your new benefits administrator to understand the allowances of the new plan.

The risk with this option is missing out on a lower-cost separately managed account that has the potential to drive more earnings than a cost-laden, passively managed, 401(k) plan. 

3. Roll your old 401(k) into a new IRA

This is by far the most common option employed by Americans because it gives the accountholder more access to low-cost investment options not typically available in a group plan. 

As a general rule, a separately managed IRA can be had at fees signficantly less than the costs associated with a group qualified plan. As 401(k)s are generally limited in investment options, moving your assets into your own IRA will greatly increase your investment options, giving you more control, and an improved increase earnings long term. 

Rollovers into a new IRA also provide consolidate through account streamlining, helping to simplify and organize your investment approach and management.

None of these options will trigger a taxable event, a common misunderstanding that brings pause to many with old 401(k)s and IRAs.

If you have an old IRA or qualified retirement account, or you are changing jobs, or preparing for retirement with a 401(k), we can help you determine your best options to make it part of your long-term investment and/or income plan. We have the knowledge and tools to help you protect and grow your assets in the manner that best suits your objectives, timeline, and risk tolerance, and we make the process simple.