In most cases, employees have two choices when it comes to saving money for retirement. They can participate in a company sponsored 401(k) program or they may have the other option of participating in an IRA program.

These plans both involve putting money aside (usually a percentage of your income) into a tax-deferred account, but an IRA works more like a personal savings account than the 401(k) programs. With an IRA, when an employee decides to retire, quit, or change jobs, he or she can receive the money saved in an IRA as one lump sum. This is known as an IRA rollover. What the person does with that money is the key to good IRA management.

One thing you can do with the money is to convert it into a more beneficial retirement account known as a Roth IRA. A Roth IRA allows you to borrow against the balance with fewer restrictions than those imposed on a standard IRA. A company-sponsored 401(k) plan, by comparison, places severe restrictions on employee access to accounts.

You do not have to take an IRA rollover even if you retire or leave the company. In other words, you cannot be forced to take the money out of the account. If you wish, the account can remain with the original company until you reache retirement age even if you are working with another company at the time.

For those who want to move their account, most employees have 60 days from the time of termination to re-invest their IRA rollover into a new account or investment plan. There are some issues associated with this, however, so make sure you get expert advice before deciding on what to do.

All IRA account holders should understand that if they elect to keep their account with a former employer and the company goes bankrupt or hits severe financial problems their money may be lost. Keep in mind that often employers change locations over time, and this can make it hard for you to keep up with where they are (and where your money is). By taking the IRA rollover at termination you can transfer the money directly into a new account, reducing your need to keep up with your past employer’s location and financial state.

As mentioned earlier in this article, IRA rules have a tendency to change often and it is your responsibility to keep abreast of what is new and current. If you find that you are facing an IRA rollover, seek the advice of a professional who can show you the options that you have and help you make the best decision concerning where to put your savings.

Special situations can always arise. Even if you think you have a complete grasp of all IRA rules and penalties, there are always special circumstances that could change things. Many times, these situations can be complex and confusing.

A common situation that arises is a job change. A lot of people do not know what to do with their current 401(k), 403(b), or other qualified retirement plans when they change jobs. You may have to consolidate accounts if you have multiple IRAs or you may have to roll your company plan over into your IRA. (A Rollover is just jargon for moving the money and assets from one account to another.) Most companies give you enough time to make these decisions, so there is typically no need to be concerned, but you should definitely call your administrator because this has to be evaluated on a case by case basis; every company has different protocols and procedures – some companies will not make you move the money at all.

Inherited IRA retirement accounts can be very confusing. If you lose a loved one and inherit their IRA account, you will be placed in one of these special circumstances. Many questions will arise and they are addressed below.

Can I Have Multiple IRA Accounts?

There are no limits placed on the number of IRA accounts an individual may hold. However, regardless of the number of accounts, the contribution limits will be combined or based on an aggregate amount contributed to all of your accounts. The amount must remain lower than the allowed IRA contribution limits for the year. Some people believe that by having two IRA accounts, they can save twice as much. This is not the case. There are also fees that are associated with multiple IRA retirement accounts so it tends to make the most sense to consolidate them into one account.

Can I Combine My IRA Accounts?

You are never required to combine retirement accounts, but it is always an option. It will definitely make things simpler. There will be a lower chance of error when making contributions. There will also be a reduced amount of paperwork involved in managing the multiple IRAs. Sometimes, there are pitfalls that can become present when rolling over IRA retirement accounts, so it is always best to discuss your options with a financial advisor before making any final decisions or call Estate Street Partners.

If you are thinking about conversions and considering what is the best IRA, it is possible to convert your Traditional IRA to a Roth IRA. You must meet certain qualifications which are addressed at: Should I convert to a Roth IRA?  Since everyone had different financial situations, make sure to consult your financial advisor or Estate Street Partnerse to make sure a conversion will be in your best interest.

What Are My Options if I Inherit an IRA?

Inherited IRAs can be difficult to understand. If you do inherit an IRA, the responsibility is now completely yours. All earnings and future distributions belong to you, as well as any taxes that are to be paid on the account.

Some accounts will allow you to close the IRA and take a lump sum pay-out. If you do this, you will owe taxes on the entire amount that is in the account at the time it is closed. The best thing to do with an inherited IRA is roll it over to your personal Roth IRA if possible or into a Roth on Roids™ account because the estate and income taxes will likely have already been paid by the estate.

Rollovers are not always an option. It will depend on the specific circumstances regarding the inherited account and your personal plans for retirement.

401(k) Plan Facts You Need to Be Aware Of

As people head into their later years, their retirement planning often includes a 401(k) plan that is offered by their employer. The whole concept of the plan appears to be simple, but you should be aware that the 401(k) plan facts do differ from the basic premise of saving for retirement. When you begin a 401(k), a portion of your income is set aside and invested into the plan. This investment is what will help you earn money for retirement. However simple that may seem, you must be aware of all the facts relating to the plan so you can ensure it is the right choice for you.

Who Can Make Use of a 401(k)?

In order to be eligible for a 401(k) plan, you must be employed by a company that offers the plan to workers. If your company does not offer a plan, or if you do not like the way a 401(k) works, you may be better off opening an IRA retirement account instead. If you do choose to take part in a company offered plan, there are three steps you must follow. To begin, you will be required to fill out appropriate paperwork that will be provided to you by your employer. Then you should go to an orientation session if the company offers one. Otherwise, make sure to read any material that is provided. The material will explain the rules of the 401(k). This will include investment choices, which will vary depending on the provider. Make sure you gain as much knowledge about the plan as possible before making a commitment to the plan.

After these two steps are completed, you will then have to decide how much of your income you wish to contribute to the plan. Many companies will match your contributions. This is an important factor. If your company offers a 100% match, then a 401(k) plan would be a great choice for you. After selecting the amount, you will need to choose what investments to use. Many plans will give you different choices, including stocks, bonds and mutual funds. Keep in mind that you have the right to stop contributions at any time. You simply have to notify your employer of your decision.

Tax Benefits Related to a 401(k)

There are two different types of plans available, a traditional 401(k) and a Roth 401(k). Each of these has different tax advantages. Traditional plans will provide two benefits, which are the ability to make contributions before taxes and the ability to later invest that money into an account that is tax deferred. Traditional plans use money from your pay check before taxes are taken out. This type of plan will reduce your taxable income.

Roth 401(k) plans are the opposite, and do not allow any contributions that are pre-taxed. This means that your income will not change, regardless of what you contribute to the Roth 401(k). The benefit of this is that when you reach the age to withdraw from the plan, the money will be available tax-free. Many people are opting for a Roth plan because it will provide them with tax-free retirement income in later years. While this is an attractive benefit, the majority of people are still investing in traditional plans.

401(k) Rollover and Terminating a 401(k) Plan

You are allowed to take the savings in your 401(k) when you leave your current job. There are four options you will have when doing so. First, you can choose to leave it as it is. Some employers will not allow this, so make sure to find out if this option is available. Second, you can use a rollover 401(k). This allows you the ability to transfer your current savings into a new plan offered by your new employer. Keep in mind you may incur some fees if the investment options are different. Third, you can use a rollover IRA and any stock broker will accept a 401k rollover money plan. This is similar to 401(k) plan rollovers. The main difference is that the money is transferred into an IRA retirement account instead of another 401(k) plan. Fourth, you can cash out the plan. This is a last resort because it will no longer allow you to save for retirement. You will also have to pay taxes on the entire amount, as well as an early withdrawal penalty fee if you are cashing out before reaching the age of retirement.