Rolling Over Your Retirement Account: How It Works - New York Estate Planning News

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Rolling Over Your Retirement Account: How It Works

Retirement accounts are critical to good estate planning and good financial planning.

You might already have a retirement account, but what happens if you're not happy with it? Did you know that it was possible to roll over your account?

You can change accounts and go with an entirely different brokerage. While you're not allowed to withdraw funds from an investment retirement account or from a 401(k) account without incurring a penalty, you are well within your rights to roll over an account.

How does this work?

Let's back up for a second here and talk about how retirement accounts work in general.

A 401(k) is a tax deferred retirement account. It's typically sponsored by an employer.

An IRA is an independent account. It stands for Individual Retirement Account. Think of it as a savings account that generates tax savings.

Both accounts, a 401(k) and an IRA, are tax-deferred accounts, which means that while they're not necessarily tax-free, they are tax-free for the time being. They get taxed once you withdraw from the account, which only happens once you've attained retirement age, which is considered to be 59 and a half.

Now, you might have ended up with an IRA or a 401(k) that isn't working for you. You can always change plans to a different brokerage or a different custodian.

This is called "rolling over" your plan. You simply transfer your funds from one plan to another. The best way to do this is through your new plan custodian. You contact that person and create a new plan. Then, you ask what paperwork she needs to roll over the old plan into the new one.

It's generally unwise to take out the funds yourself and "roll them over," as you could be hit with a penalty of 20 percent.

Of course, you need to look into your plan to ensure there are no restrictions to rolling over your account. This whole process is fairly complicated, but it can pay off in the end.

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