When it comes to IRAs, the many names that exist for all of the different types of accounts can get confusing. If you’ve recently established a rollover IRA, you may be confused as to which types of accounts can be transferred into that rollover IRA. The following are some guidelines that will help you understand the process.
First, you’ll need to know what type of rollover IRA you have. Is it a Roth conversion account? A 401k rollover IRA account? As you might expect, the type of rollover account you have will make a difference in terms of which types of accounts it can accept a rollover from.
The easiest type of rollover to do is one that rolls over a particular type of account into the same type of account – known in the financial world as the rule of “like accepts like.” For example, if you have a 403b account, you can rollover to another 403b account. Or, if you have a Roth IRA, you can perform a Roth IRA rollover to the same type of account. If you have a 401k account, it can be rolled over into another 401k. Every type of IRA can accept money from the same type of account, although in the case of a designated Roth IRA, the transfer must be a trustee to trustee transfer.
In addition, any type of account can be rolled over into a Roth IRA, as long as the necessary taxes are paid on any funds coming from pre-tax accounts. This is because a Roth IRA is a different type of IRA which accepts contributions that have already been taxed. If you’re performing a Roth IRA rollover, you’ve got to pay income taxes on those contributions first. The advantage to this, of course, is that you won’t pay income taxes again when that money comes out of the account in retirement.
Alternatively, if you have a Simple IRA, know that it can receive money only from another Simple IRA. If you’re looking to roll money out of a Simple IRA, you’ll have to wait for a period of at least two years from the time you first began participating in the account to roll the funds over into another type of account, unless you’re moving your funds directly into another Simple IRA.
As for the other types of rollover IRA accounts, know that if you have a traditional IRA, SEP IRA, 457b, 403b or qualified pre-tax plan, it can accept transfers or rollovers from any other type of account, with the exceptions we have previously discussed. Because these types of accounts are much more commonly used than the few exceptions described above, you’ll likely find that your rollover will proceed without any issues.
But if you’re still confused, you can find more information at the IRS website. Better yet, meet with the accountant who prepares your taxes and/or your financial advisor to discuss the impact of a rollover IRA on your retirement holdings. It’s a good idea to meet with these professionals any time you’re considering a financial transaction that will have implications for your taxes or retirement years. They can help you to roll confidently in the right direction.