• A rollover IRA is one of four options you may have for old employer plan assets when leaving an employer; review all of your options before making a decision.
• A rollover allows you to transfer assets from your former employer’s plan into an IRA without taxes or penalties (may be subject to new fees and costs)
• Assets continue to accumulate on a tax-deferred basis
• Consolidating money from multiple employer plans into one account can increase administrative ease
Anyone who earns taxable compensation is eligible to make contributions to a Traditional IRA. Contributions to a Traditional IRA grow tax-deferred until the money is withdrawn.
If you’ve earned income below a certain threshold – $161,000 (filing single) or $240,000 (filing joint) for 2024 – a Roth IRA may be appropriate for you. Your contributions and any accumulated earnings can be withdrawn tax-free at retirement.
With a direct rollover, you don’t take possession of the money. Rather, you instruct your former employer to send your retirement plan assets directly to a qualifying employer plan or to an IRA (either Traditional or Roth). This can be a simple way of rolling over funds and keeping your retirement assets working toward your goals.
With an indirect rollover, you begin by requesting a lump-sum distribution from your plan administrator and then take responsibility for completing the transfer. With an indirect rollover, you will not get the full dollar amount – because the plan administrator is required to withhold 20% to ensure taxes on the income will be paid in the event that the rollover is not completed. To avoid being taxed on your (pre-tax) contributions and earnings, and to avoid the potential of an additional 10% withdrawal penalty (applicable if you’re younger than age 59½), you must deposit the funds into a qualifying employer plan or IRA within 60 days. If you want to defer taxes on the full amount distributed to you, you will have to add funds from another source equal to the 20% withheld. You’ll get that money back if you properly complete the rollover.
You can elect to take the money from your employer-sponsored plan and NOT roll it over to an IRA, but you will have to pay taxes on the amount withdrawn. If you’re younger than age 59½, distributions may also be subject to a 10% early withdrawal penalty.
A Roth Conversion allows you to take money in your Traditional IRA and move it into a Roth IRA. Generally, you’ll owe taxes on the amount of money you convert. However, qualified withdrawals from a Roth IRA can be made tax-free. This may result in significant savings in the long run. Consult your legal or tax adviser on this opportunity and your individual tax situation.
Call 855-PNC-INVEST for help in deciding whether a Roth Conversion is appropriate for you.
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