Can You Partially Rollover an IRA?
Based on your circumstances, it may make sense for some assets to remain within a 401(k), while shifting other investments over to an IRA for increased investment opportunities and tax benefits – and possible early withdrawal penalties avoided.
However, indirect partial rollovers may incur certain fees that should be carefully considered before proceeding with them.
Can You Partially Roll Over Your 401(k)?
A 401(k) rollover involves moving assets from one retirement account to another, typically when an employee changes jobs. Rollovers may take place between different types of IRAs or employer-sponsored plans such as SIMPLE IRAs. When done properly, rollovers should be free from taxes and penalties.
Under certain conditions, partial 401(k) rollover may make sense. For instance, if your old 401(k) includes company stock that has seen significant appreciation, leaving this asset within its company plan while only rolling over other assets into an IRA can help take advantage of special tax rules for net unrealized appreciation (NUA).
No matter the reason behind partial rollovers, the key to successful money transfers lies in making sure it lands in an account with similar tax treatment to its original account – otherwise you could run into issues regarding income taxes and early withdrawal penalties.
Can You Partially Roll Over Your IRA?
When rolling over an IRA, it’s crucial that you select a provider who allows direct transfers. Otherwise, indirect rollover could force you into an indirect rollover which could cost more in terms of taxes and penalties.
You have 60 days from receiving any pre-retirement distribution from your employer plan or an IRA into another account to avoid income taxes and penalties from the IRS. Otherwise, any distribution will be taxed as ordinary income and subject to an early withdrawal penalty of 10% if you’re under age 59 1/2.
Remember that you can only perform one indirect rollover per year across all of the IRAs you own, such as traditional, Roth, SEP, and SIMPLE IRAs. If you need to do multiple indirect rollovers within one year, distributions will need to be split among different accounts in your IRA; otherwise funds could move directly from one IRA into your new employer’s retirement plan or another financial institution’s IRA account.
Can You Partially Roll Over Your 401(k) to an IRA?
One of the many advantages of rolling over your retirement account is being able to select from an expanded selection of investments. Many IRA providers provide niche investments not available within company plans and their costs may often be lower as well.
Rolling over an IRA also gives you greater control over who will inherit your accounts, helping avoid probate proceedings and lower future fees.
If you are performing a partial rollover, it is crucial that the funds land in an account with similar tax treatment to where they began. For instance, moving money from a pre-tax 401(k) into a Roth IRA may result in it being taxed as ordinary income; to prevent this tax burden directly deposit the distribution into post-tax IRA account afterward. Likewise, mixing assets from different retirement account types could create tax issues as well.
Can You Partially Roll Over Your IRA to a Self-Directed IRA?
Rollovers are an efficient way to move assets between retirement accounts. An IRA may be converted to an SDIRA to diversify investment options or take advantage of higher returns; but be sure to consult a financial advisor first before making any definitive decisions.
If your former employer offers eligible distributions that qualify for rollover, it must be transferred within 60 days or else tax will be levied at your ordinary income rate on the taxable amount.
If your old 401(k) contains a sizable balance, partial rollover may be beneficial in reducing taxes and providing penalty-free access once age 59.5 has been reached. When selecting your custodian it is crucial that they offer a wide range of investments so as to prevent excessive fees being levied against you.
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