Individual Retirement Accounts (IRA)

Transitions are a fact of life, and often they affect the road to retirement. That's when IRAs can provide further flexibility via rollovers and Roth conversions. If you are starting a new job and need to consolidate retirement accounts, you may want to think about a rollover transaction. An IRA rollover is a transfer of funds from other sources — like lump-sum distributions from pension, profit-sharing, 401(k), 403(b), or governmental 457 plans, or transfers from other IRAs — into a new or existing IRA. By rolling over, you will avoid paying any tax penalties, as long as the rollover is completed within 60 days of the initial distribution. Keep in mind that there may be 20% withholding on a rollover.

Another major life transition is leaving the workforce. Do you anticipate paying more or less taxes in retirement? Tax rules permit you to convert your traditional IRA into a Roth IRA if certain rules are followed.  Converting to a Roth IRA will reduce tax liability when retirement distributions are taken or reduce taxes paid by beneficiaries. Keep in mind, though, that the amount converted is taxable in the year the conversion occurs. And that tax money has to come from another source — you are not allowed to pay the taxes using any of the converted funds (otherwise you may be subject to an early withdrawal penalty). Not all Roth conversions result in tax savings. Be sure to consult your tax professional to discuss your IRA strategy and decide what is best for you.