Planning for retirement is one of the most important things that you can do throughout your working life. However, this can be a highly complicated task because you will have special investment accounts that are governed by separate tax rules as the rest of your finances. This is particularly true for those that have an IRA. As a result, having these two questions answered may help you to better understand your individual retirement account.
Why Would You Want To Rollover Your IRA?
IRAs are often offered by employers as a benefit to their workers. Over the years, it is common for a small portion of each paycheck to go into this account, and the employer will often match this amount. However, your life can change and you may be switching employers. In this situation, it is necessary for you to rollover your IRA account into your account with your new employer to make it easier to manage your finances.
While this is one of the main reasons for needing IRA rollovers, this can also be needed if you are wanting to switch to a different investment firm. Often, people will do this to take advantage of different services or higher returns.
Are There Tax Consequences For Rolling Over Your IRA?
Unfortunately, there are some people that may delay rolling over their IRA because they are concerned about incurring tax penalties. Considering that it is possible for these accounts to hold substantial sums of money, it should be no surprise that some people are concerned about accidentally getting taxed on this money before they are ready.
Luckily, this is not something to be worried about when you are rolling over an IRA. As long as the money in the IRA is transferred directly to the other financial institutions, you will not incur additional taxes. However, if you were to withdraw the IRA and then deposit it into your new account, you will likely be hit with a tax penalty.
Planning for your life after work is an important part of ensuring that you have a high quality of life in your older years. Yet, you may not be very familiar with the intricacies of retirement investment planning, and this can cause you to be unsure about how your IRA works. By understanding the reasons you may want to roll over your IRA into a new account and how to avoid tax penalties when doing this, you should be better able to make smart choices for your financial future.