Rollover IRA – Understanding the Advantages

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As you learn more about the financial tool known as a rollover IRA, you’ll see how easy it can be to use this type of retirement savings account to both maximize the return on your money and to consolidate any wayward retirement accounts that you’ve acquired from previous jobs.  These are just a few of the primary advantages of a rollover IRA.

The first thing you need to know is that “rollover IRA” isn’t technically an IRS definition.  Instead, it’s a term for you, the account holder, to use to classify your retirement accounts when you’re moving money around.  In some cases, rollover IRAs are called “target IRAs” because they’re the “target,” or destination, of the money that’s being moved.

One thing you need to have with your retirement investments is the ability to make changes as necessary, in order to keep up with your changing needs and goals.  This can be hard to do if you have several retirement accounts in different locations.  In fact, it can be such a cumbersome task that you might be tempted to just leave the accounts as they are, rather than going to the trouble of making changes to all of them.  Consolidate your various accounts using a rollover IRA account, and the process of making adjustments will become much easier.

Another advantage of utilizing a single rollover IRA is that having a larger account may give you more investment flexibility.  Certain investments may have minimum investment requirements, so a larger account – which you create by consolidating various accounts using a rollover IRA – may make you eligible for these different options.  And when it comes to investing, having more options is a definite advantage.

Another advantage to establishing a rollover IRA is that you may have the opportunity to open a different type of account than your previous employers offered.  For example, as of 2010, it’s easier than ever to choose the Roth IRA structure for your rollover IRA.  Maximum income restrictions on Roth IRA rollovers have been eliminated and, if you rollover money this year, you’ll be allowed to defer taxes – paying half in 2011 and half in 2012.  In many cases, there are several advantages to choosing a Roth IRA that outweigh the need to pay taxes now rather than at retirement.  Considering these changes, there’s never been a better time to talk to a financial planner to find out if a Roth IRA is the right choice for you.

If you have multiple accounts, you can elect to designate one particular account as your rollover IRA.  However, you also have the option of establishing a new account as an individual.  If you’re considering an IRA rollover, it’s probably a good time to stop and take a good look at how your accounts are performing and whether the accounts you have are in line with your personal retirement savings goals.  In fact, even after you complete your rollover, it’s a good idea to set up a regular review with your financial professional to make sure that your investments are on track and are moving you toward your financial goals.

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