Understanding IRAs and Rolling Over Your 401(k)

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An IRA (individual retirement account), as the name suggests, is a retirement account for individuals that allows you to boost your retirement savings by investing pre-tax dollars.

[VIDEO] Understanding Individual Retirement Accounts (IRA)

Many individual investors don’t have access to an employer-sponsored retirement plan, like a 401(k). However, these individuals need to be planning and saving for retirement too. And since Congress didn’t want to play favorites with only those investors who work for companies that offer retirement plans, it created IRAs. An IRA offers most of the perks and benefits you will find in a 401(k) plan, but it gives you the ability to manage your investments on your own.

IRA Basics

IRAs are defined by a few basic features. Once you understand these basic concepts, the rest is just details. Here are the important points you need to remember:

  • You don’t pay taxes on the money you put into your IRA
  • Your investments grow tax-deferred inside your IRA
  • You pay taxes when you take your money out of your IRA at retirement

IRA Details

The following table outlines the specific details that make an IRA unique.

Plan Components


Tax Treatment (Contributions)Pre-Tax Contributions
Tax Treatment (Withdrawals)Ordinary Income
Contribution Limits (per year)$5,000
Catch-Up contributions (50 years old or more)$1,000
Employer ContributionsN/A
Contribution DeadlineApril 15 of the following year
Early Withdrawal Penalty10% Penalty
Withdrawal Eligibility Age59 1/2
Minimum Required Distribution Age70 1/2
Minimum Required DistributionBased on Age and Account Size
Rollover OptionsRollover IRA
Loans from Your IRANot Available
Investment ChoicesDepends on Your Broker


Moving Your Money from a 401(k) to Another Account

When you leave a job where you have a 401(k) retirement account, you have a choice. You can either leave your money in the company’s 401(k) account, or you can transfer your money out of the company’s 401(k) account and into a personal retirement account. For most people, the choice is a simple one–move the money into a personal account so you have control of it.

[VIDEO] Rolling Over 401(k) Retirement Accounts

The question is, how do you do that? How do you transfer money out of a 401(k) account and into a personal retirement account? Watch the video above and we’ll walk you through the process.


Image courtesy Vickie Hugheston.