Rollover Eligibility


rolls of money

If you’re like most people, you’ll experience a job change roughly every four years. And if you’ve been contributing to a 401(k) plan at that job, you might be wondering what happens to the money you’ve invested in your 401(k) sponsored after you leave.

Fortunately, you can rest assured that the money you’ve saved can come with you (but your employer’s contributions may have a vesting schedule) and that you now have more options for your old 401(k). In this guide, we’ll review your rollover options, eligibility, and how to decide what to do with your employer-sponsored retirement plan if and when you leave your job. So, keep reading to learn how to rollover.

What are the retirement plan options?

There are many different retirement options, each with its own set of benefits and drawbacks.

401(k)

401(k) plans usually offer well-known securities like stocks, bonds, and index funds. Most private employers who offer a retirement plan will sponsor a 401(k), to which employees can contribute. Employers may also provide matching contributions on 401(k) plans. For the 2022 year, the 401(k) employee contribution limit is $20,500. 401(k) plans are subject to required minimum distributions (RMDs), which are required withdrawals from your account at a certain age (72 as of the 2022 tax year).

403(b)

403(b) plans are retirement plans for government employees and employees of some tax-exempt organizations (like non-profit hospitals, for example). 403(b) plans share many similarities (and contribution limits) with 401(k) plans but may also have more annuity options. 403(b) plans, like 401(k) plans, have RMDs.

457

457 plans are retirement plans for employees of states, local governments, and select non-profits. Like 401(k) and 403(b) plans, 457 plans have a contribution limit of $20,500 per year for 2022. Investment options in 457 plans are somewhat limited, focusing on mutual funds and annuities. 457 plans are also subject to RMDs.

Individual Retirement Account (IRA)

Traditional IRAs have annual contribution limits of $6,000 for the 2022 tax year and RMDs at the IRS-determined age. IRAs are popular retirement accounts since they offer a more comprehensive selection of investments and the opportunity to invest in virtually any asset class if you choose a self-directed IRA – or SDIRA (more on that below).

Roth IRA

The Roth IRA is similar to the Traditional IRA, with three key differences. First, the Roth IRA has maximum income limits. If you earn more than a certain amount per year ($144,000 for single tax filers in 2022), you cannot contribute to a Roth IRA. Second, with a Roth IRA, you contribute post-tax income but enjoy tax-free gains if you take your distributions when you reach retirement age. Finally, the Roth IRA is the only account type that doesn’t have RMDs.

Roth 401(k)

The Roth 401(k) combines the higher contribution limits of a 401(k) with the tax advantages of a Roth IRA. Unlike a Roth IRA, you can’t set up a Roth 401(k) on your own – only an employer sponsor can set one up for you. Despite being a Roth plan, the Roth 401(k) is treated like a 401(k) with regard to RMDs.

Savings Incentive Match Plan for Employees (SIMPLE) IRA

SIMPLE IRAs are commonly used by small businesses. At $14,000 per year, SIMPLE IRAs have higher contribution limits than traditional and Roth IRAs but lower limits than a 401(k). SIMPLE IRA plans generally don’t offer much diversity regarding asset options, limiting investors to investments like index funds, stocks, bonds, and certificates of deposit (CDs). At age 72, you have to take RMDs from your SIMPLE IRA.

Simplified Employee Pension (SEP) IRA

Small businesses and self-employed individuals can save for retirement with SEP IRAs. SEP IRAs have generous contribution limits of either $61,000 or 25% of employee compensation – whichever is less. Investors with SEP IRAs can choose from mutual funds, ETFs, individual stocks and bonds, and CDs but do not have access to alternative investments like precious metals and cryptocurrencies. With a SEP IRA, you also have to take RMDs.

What is a rollover?

A rollover is when you withdraw assets from your eligible retirement plan and move them into a different retirement plan. Most people choose to do a rollover when they leave a job and can no longer contribute to the company’s retirement plan. Still, you may initiate a rollover to take advantage of a different type of retirement account.

How do you rollover funds from one account to another?

money transferThe first step in rolling over funds from one account to another is to decide which account type you want to roll your funds into. Next, you’ll open a new account (if necessary) – like an SDIRA – so that the funds from the old account have somewhere to go.

Once you have your new account information, you’ll complete a transfer form to notify your old retirement plan provider that you’re moving your assets out of your old account. You have two options for rolling over your assets. The first is a direct rollover, where your old account’s custodian sends the funds directly to your new plan. Alternatively, you can elect to receive a check-in which is known as an indirect rollover; you would then have to deposit the funds into the new account yourself.

Keep in mind that you only have 60 days from receipt of the distribution to invest into the new account – otherwise, you could be charged taxes and an early withdrawal penalty. In some cases, a medallion signature may also be needed to transfer your funds via a rollover. Medallion signatures are used for security and deterring forgery and theft. They can usually be obtained from your bank, credit union, or brokerage firm (call ahead to confirm the service is available, and schedule an appointment).

What kinds of accounts can you roll into?

Use the below matrix to figure out what retirement account you can roll your current one into. On the left, choose the type of account you want to roll over from, and on the top, you will see a list of account types that you can (or cannot) roll into.

Account Type Roth IRA Traditional IRA SIMPLE IRA SEP IRA 457 401(k) 403(b) Roth 401(k)
Roth IRA Yes No No No No No No No
Traditional IRA Yes Yes Yes, after 2 years Yes Yes Yes Yes No
SIMPLE IRA Yes, after 2 years Yes, after 2 years Yes Yes, after 2 years Yes, after 2 years Yes, after 2 years Yes, after 2 years No
SEP IRA Yes Yes Yes, after 2 years Yes Yes Yes Yes No
457(b) Yes Yes Yes, after 2 years Yes Yes Yes Yes Yes
401(k) Yes Yes Yes, after 2 years Yes Yes Yes Yes Yes
403(b) Yes Yes Yes, after 2 years Yes Yes Yes Yes Yes
Roth 401(k) Yes No No No No No No Yes

 

What other considerations do you need to be aware of?

transferThe most important consideration when completing a rollover is being aware of the rules. If you transfer indirectly, you must deposit your funds within 60 days. If not, you may have to pay a penalty and any applicable taxes.

After the initial rollover, you have to be careful not to exceed the contribution limits. Finally, if you received matching contributions from your employer, you may not receive all the money if you weren’t fully vested in the plan. (“Vesting” refers to your right to or ownership of funds contributed to the plan by the employer.) This depends on how long you worked at your previous employer and the company’s vesting schedule.

Where to begin?

You can start the rollover process by visiting Birch Gold and setting up your self-directed IRA today. An SDIRA is a great way to give yourself more control over your retirement account and open up the option of investing in alternative assets like precious metals, cryptocurrencies, real estate, collectibles, and more.