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 / Investments / 401(k) Rollovers and IRAs
401k Rollovers and IRAs

Should I Transfer my 401(k) to an IRA?

If you have a 401(k) and are approaching retirement or changing jobs, consider a rollover IRA. A rollover is merely a transfer of 401(k) plan assets from your 401(k) to your IRA. If done correctly, it is not a taxable event.

Before deciding whether to leave your money in your former employer’s 401(k) or transfer it to an IRA of your choosing, evaluate the following:

  • Fees
  • Access to funds
  • Options for designating beneficiaries
  • Distribution options for owner and beneficiary
  • Availability of investment options
Keeping your money in an IRA?

  • Two methods are available to move an IRA to another institution:
    • A direct trustee-to-trustee transfer is the preferred method.
      • A direct transfer is not subject to federal withholding.
      • A direct transfer has no restrictions on how often it’s moved.
    • A 60-day rollover is the other way to move your IRA.
      • A 60-day rollover is subject to federal withholding.
      • A 60-day rollover can only be done once every 12 months.
  • Inherited IRAs
    • Deceased spouse's IRA can be combined with survivor spouse’s IRAs.
    • Non-spouse beneficiaries must have a beneficiary IRA.
    • Traditional & Roth IRAs can be inherited by a non-spouse.
    • Beneficiary must begin taking distributions starting the year following death.
    • Traditional IRA distributions will be taxed at income tax rates.
    • Roth IRA distributions will be income tax-free.
    • No 60-day rollover on a beneficiary IRA.
Taking your money out of an IRA?

  • IRA withdrawals (excluding after-tax contributions) are taxable.
  • A 10% penalty is added if you’re under age 59½.
    • Some exclusions apply.
  • At 70½, you must begin Required Minimum Distributions
    • Except from current employer’s plan if still working at age 70½ and employer has adopted an exception in their plan document.
Traditional IRAs vs. Roth IRAs—What’s in it for me?

  Traditional IRAs Roth IRAs
Tax Advantage Tax-deferred earnings Tax-free earnings
Tax Deductibility Contributions are deductible up to maximum allowable annual amount Contributions are not deductible
Taxes on Withdrawals Ordinary income tax on earnings and deductible contributions Distributions from contributors are tax-free. Distributions from earnings are tax-free later of 5 years and age 59½
Required Withdrawals After age 70½ None


What is a Roth Conversion?
  • The act of moving funds from an existing Traditional IRA into a Roth IRA
  • The amount converted is fully subject to federal and state income taxes
To Roth or not to Roth?

A Roth conversion may not be appropriate if:
    • You need to use your retirement account to pay the taxes from a conversion.
    • You expect to be in a lower tax bracket in retirement.
    • Reducing taxes paid by your beneficiaries is not a high priority.
    • The beneficiary of your traditional IRA is a qualified charity.
    • You want to avoid any negative impact to your tax deductions, tax credits, tax on social security income, or Medicare Part B premium resulting from the additional income in the year of a Roth conversion. 
A Roth conversion may be appropriate if:
  • You have enough money outside of your Traditional IRA to pay the taxes for a conversion.
  • You expect to be in a higher tax bracket in retirement.
  • You want to avoid taking required minimum distributions from your IRA.
  • You want to take advantage of a lower-than-usual personal marginal tax rate.
    • Sudden change in household income or itemized deductions
    • Business owner taking a lower salary
  • You want to leave your spouse and beneficiaries tax-free distributions.
  • You want to reduce the size of your estate to minimize estate taxes.



*Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members.
Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. FR021206-5090

 

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