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Making the Most of Your Retirement
If you're leaving a job, retiring, or have money left in a former employer's 401(k) plan, you may want to consider rolling those retirement assets over to a PNC Investments Rollover IRA. This is one of four options you may have for these assets.
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Rollover IRAs
• 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
2 Types of IRAs: Traditional & Roth
If you are considering rolling money over to an IRA, you will need to choose either a Traditional IRA or a Roth IRA. The account type that’s appropriate for you is dependent upon your income, personal tax situation and other factors.
Traditional IRA
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 Contributions to a Traditional IRA grow tax-deferred until the money is withdrawn.
- Contributions may be tax-deductible or you may be able to make non-deductible contributions
- Earnings remain invested tax-deferred, allowing your retirement investments to take advantage of compounding. Consult your tax advisor to determine the eligibility of contributions as either deductible or non-deductible.
- No maximum income limits for eligibility, no minimum contribution required to open an account; however, not all contributions may be deductible, consult with a tax professional to determine your eligibility
Roth IRA
If you’ve earned income below a certain threshold – $153,000 (filing single) or $228,000 (filing joint) for 2023 – a Roth IRA may be appropriate for you. Your contributions and any accumulated earnings can be withdrawn tax-free at retirement.
- Though contributions are made after-tax, earnings remain invested tax-free for retirement
- Funds can be distributed tax-free in retirement; there is no tax on qualified distributions after age 59½, provided the account has been open for five years
- Contributions can be withdrawn at any time without penalty
- May be more appropriate for those with growing income potential (who may be taxed at a lower rate now versus in retirement)
- Distributions may be passed on to beneficiaries tax-free
- No lifetime RMDs (Required Minimum Distributions)
Consider This: Rollovers & Distributions
Before moving retirement funds, it may be a good idea to think about:
- Investment Options – Your satisfaction with the investment products available through all account types and options available, including both IRAs and the employer plans available to you
- Fees and Expenses – Fees, costs and expenses you may incur in an IRA compared to the employer plan(s) available to you, at the account level, product level and administrative level
- Services – Different options in service with an IRA compared to employer plan(s), i.e., online access, frequency of changes, phone support and availability, face-to-face contact, whether you’ll have a dedicated advisor and access to planning tools
- Penalty-Free Withdrawals – If you leave your job between ages 55 and 59½, you may be able to take penalty-free withdrawals from an employer plan; this may not be possible with an IRA until age 59½
- Protection from Creditors and Legal Judgments – State laws vary in the degree of protection afforded to IRA assets; as a general matter, employer plan assets have higher degrees of protection from creditors than IRA assets
- Required Minimum Distributions – Once you reach age 73, employer plans and Traditional IRAs require periodic withdrawals of minimum amounts, known as “required minimum distributions,” or RMDs (if you’re still working at age 73, however, you generally are not required to take RMDs from your current employer’s plan)
- Employer Stock – If you hold employer stock through employer plan accounts, you may forgo your ability to enjoy net unrealized appreciation (NUA) tax advantages if you roll those assets to an IRA (be sure to weigh the tax advantages of retaining employer stock in a non-qualified account against the potential risk of having too much employer stock in your retirement account)
Direct Rollover
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.
Indirect Rollover
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.
Distribution
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.
Convert Your Traditional IRA to a Roth IRA
Call 855-PNC-INVEST for help in deciding whether a Roth Conversion is appropriate for you.
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.
Understanding Rollover IRAs
Explore options for what to do with your
401(k) when leaving an employer.
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