If you’ve recently parted ways with your former employer, you might be wondering what to do with your 401(k) or 403(b) balance. While you could leave it alone or cash out, those generally aren’t the best options. Leaving the account alone may limit your investment options, and cashing out will result in a hefty tax bill.
The better choice? A rollover IRA.
A rollover IRA is simply an individual retirement account (IRA) that you fund by rolling over either your old employer-sponsored 401(k) or another existing IRA into it. The rollover IRA can help you access a broader range of investments than you’d get with your old employer-sponsored plan. Plus, if you have multiple 401(k) accounts, a rollover IRA will let you consolidate them all into one. That way, your retirement savings aren’t distributed haphazardly across multiple employer-sponsored accounts.
Of course, there’s no shortage of rollover IRA account options, so choosing an account can take time. To help you narrow down your selection, I’ve created a list of top rollover IRA accounts, explained the pros and cons of each, and outlined what each account provider is best for.
Related: How to Roll Over 401(k) Accounts
Table of Contents
Rollover IRAs—Our Top Picks
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Top Low-Cost Rollover IRA
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The Only Roth IRA With a Match
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Robo-Advisor Rollover IRA
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4.6
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Primary Rating:
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Primary Rating:
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Fidelity Rollover IRA: No annual, opening, or closing fees. Fidelity Go Rollover IRA: 0.35% annual fee.
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No annual, opening, or closing fees. Robinhood Gold: Free 30-day trial, then $5/mo.
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No annual or opening fees. $100 closing fee. M1 Plus: $10/mo. or $95/yr.
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Best Rollover IRA Accounts [Where to Roll Over Your 401(k) and Other Retirement Accounts]
Below are my thoughts on the top IRA providers. All of them should make good-to-excellent stewards of funds that people roll over from their employer-sponsored retirement plan or an existing IRA elsewhere.
1. Fidelity Rollover IRA (Best IRA Account for Retirement Savings)
- Account minimum: None
- Minimum initial deposit: None
- Fees: Fidelity Rollover IRA: No annual, opening, or closing fees; Fidelity Go Rollover IRA: 0.35% annual fee
Fidelity, one of the largest brokerages in the U.S., offers a rollover IRA option that’s worth considering if you want to move money from an old 401(k) or 403(b). It offers both traditional and Roth IRAs, so whether you have both pre-tax dollars and/or post-tax dollars in your 401(k), Fidelity has you covered.
If you’re a self-directed investor like me, the Fidelity Rollover IRA is a better choice. It lets you pick and choose your investments, and you won’t be subject to advisory fees. Plus, a Fidelity Rollover IRA isn’t subject to account minimums, has extremely minimal fees, and offers commission-free trades. While you can expect no opening fees, closing fees, or annual fees with a Fidelity Rollover IRA, you might pay mutual fund fees and fees for other managed accounts—but this is par for the course no matter which provider you choose.
I also like Fidelity’s wide range of available assets, which includes stocks, bonds, certificates of deposit (CDs), annuities, exchange-traded funds (ETFs), and mutual funds, which include the Fidelity Freedom target-date retirement funds series. Options trades are also available in a Fidelity IRA, but the strategies accessible in the account are generally limited to options Tier 1 with the addition of spreads (up to four legs). Again, this is very common for IRAs.
Some people prefer to hand the work over to someone else. If you’re one of those people, consider the Fidelity Go Rollover IRA. With this digital account, Fidelity selects investments based on your risk tolerance and goals.
Because this is a managed account, you’ll pay annual advisory fees of 0.35% of assets under management once your balance exceeds $25,000. This figure compares favorably to competitors like Betterment that charge more for similar services. In exchange for those fees, you’ll get unlimited one-on-one coaching calls with a dedicated team of Fidelity advisors.
Also helping you save: The Fidelity Go Rollover IRA account only invests in the Fidelity Flex series of mutual funds, which charge no management fees and (with few exceptions) fund expenses.
Both accounts offer a compelling set of features and costs—which one you pick depends largely on your needs. Either way, Fidelity’s Rollover IRA lineup is inexpensive, highly functional, and flexible. Open your account today.
- The Fidelity Rollover IRA offers high investment flexibility with no account minimums, nor opening, closing, or annual fees.
- Wide variety of investment options, including stocks, ETFs, mutual funds, bonds, CDs, annuities, and options.
- Investing with Fidelity opens up access to its zero-expense ZERO line of index mutual funds.
- Put a variety of investing and trading tools to work, including Fidelity's stock research dashboard, stock screener, and Active Trader Pro.
- Fidelity also offers the Fidelity Go Rollover IRA—the robo-advisor experience that comes with unlimited one-on-one coaching calls with a dedicated team of Fidelity advisors.
- No annual, opening, or closing fees for traditional rollover IRA
- Excellent selection of available investments
- Commission-free trading on stocks, ETFs, U.S. Treasuries, all Fidelity mutual funds and some mutual funds from other fund families
- Fractional shares
- Access to Fidelity's ZERO line of index funds
- Unlimited 1-on-1 coaching calls with Fidelity Go Roth IRA
- Above-average options fees
- High $25,000 investment minimum to use Fidelity Go
Related: 20 Best Investing Research + Stock Analysis Websites
2. SoFi Invest (Best for People With Other SoFi Financial Products)
- Account minimum: None
- Minimum initial deposit: None
- Fees: No annual or opening fees; $20 closing fee
SoFi is known for its low fees across its various financial products and services, and that includes its rollover IRAs. So if you’re a happy SoFi customer, you might want to consider rolling over your old employer-sponsored account to a SoFi Invest IRA.
SoFi offers both traditional and Roth rollover IRAs, and its accounts can be actively managed or automated, depending on your investing style. SoFi’s team of financial experts can also provide guidance if you’re rolling over an old employer-sponsored account and need assistance.
SoFi offers two options catering to different investment styles. Its active investing option lets you choose and manage your own investments. And with its automated investing option, SoFi will select and manage investments on your behalf.
You won’t pay management fees with either account option, and SoFi doesn’t charge commissions for stock and ETF trades. Several other investment choices are also available, including options and margin trading. As is usual, underlying fund fees might apply depending on the investments you choose. You will have to pay a modest $20 fee to close your account.
SoFi’s platform lags other traditional online brokers in terms of sophisticated tools, but it is simple and easy to use, favoring younger, less experienced investors. SoFi also offers budget-friendly features such as fractional shares, which allow you to invest for as little as $1.
- SoFi Invest's rollover IRA allows you to trade or invest in stocks, ETFs, and options with no commissions (or options contract fees) and no account minimums.
- Invest for as little as $1 with fractional shares.
- Free robo-advisory services, including goal planning and auto-rebalancing.
- No annual or opening fees
- Good selection of available investments
- No options contract fees
- DIY and automated investing options
- No management fees on automated account management
- Fractional shares
- Modest closing fee ($20)
- No mutual funds
- Limited trading tools
- No tax-loss harvesting
- No socially responsible robo-advisor functionality
Related: How to Get Free Stocks for Signing Up: 15 Apps w/Free Shares
3. M1 Finance (Best Customizable Robo-Advisor)
- Account minimum: None
- Minimum initial deposit: $500
- Fees: No annual or opening fees; $100 closing fee
Self-directed robo-advisor M1 Finance offers traditional and Roth rollover IRAs in one of the more interesting value propositions on this list. Based on my extensive review of the best rollover IRAs, I consider M1 Finance to be a suitable choice to someone who wants the benefits of a robo-advisor, but with the self-directed drive to pick their own investments.
The free investing app provides pre-built portfolios called “Expert Pies,” and each pie is customized based on various investment goals. For example, you can build a traditional portfolio of stocks and ETFs, or an age-suitable retirement portfolio through target-date fund-style investments. There’s even an Expert Pie geared toward responsible investing.
While its Expert Pies are pre-built, you have the option to customize your investments as well. You can opt to add slices from different Expert Pies to your portfolio, or select individual stocks or ETFs based on your investment preferences.
M1’s customization options set it apart from other robo-advisors, which typically don’t offer as much choice for your investments. Also attractive is the ability to automate your investments based on your Expert Pie, and a lack of management fees.
I do have to point out that M1 has a $500 minimum deposit for IRAs; that’s high for an IRA, though it’s modest for a robo-advisory product. M1 also charges a hefty $100 closing fee and $100 account transfer fee. (So, if you were to transfer your IRA to a different provider, you would actually be subject to both fees for a total of $200.)
- M1 Finance's rollover IRAs make investing for retirement easy thanks to M1's Pies system. Simply decide how much of your portfolio you want each stock and/or ETF to represent, and M1 will automatically invest your money based on those targets.
- You can also save within the M1 system via their high-yield savings account, or spend with M1 checking account and debit card, or M1's Owner's Rewards Credit Card.
- Upgrade to M1 Plus and unlock perks including higher cash-back rewards on the M1 Owner's Rewards Credit Card, 5.00% APY from high-yield savings, ATM reimbursements, and 0% international fees.
- Special offer 1: Open an account and get 3 months free of M1 Plus*.
- Special offer 2: Roll over $100,000 - $1,000,000+ and get a bonus worth between $500 and $5,000**.
- No annual or opening fees
- Robo-advisor with self-directed investing capability
- Low minimum investment for a robo-investing product
- Attractive cash-back and APY opportunities with M1 Plus subscription
- High closing fee ($100)
- High minimum investment for a rollover IRA
- Doesn't support mutual funds
- Doesn't allow trading throughout the trading day (1 trading window for Basic, 2 for M1 Plus)
- High cost for M1 Plus service tier
Related: The 13 Best Investment Apps for Beginners
4. Betterment (Best ETF-Based Robo-Advisor With Human Advisors)
- Account minimum: None
- Minimum initial deposit: $10
- Fees: $4/mo. or 0.25% annually
If you’re a fan of diversifying your portfolio with ETFs, a Betterment rollover IRA could be a good choice. This robo-advisor platform allows you to invest in a series of low-cost ETFs with different themes and purposes. For instance, you could choose to invest in its Social Impact or Climate Impact portfolios if you care deeply about social justice or the environment. Betterment also offers crypto-focused ETFs for investors interested in decentralized finance, including an ETF specifically focused on the metaverse.
Although Betterment is a robo-advisor, it does offer access to human advisors, too. This is a big plus to me—I’m a self-directed investor, but even if I convinced myself to lean on a robo-investor, I’m the kind of person who wants to learn what I can, and I’d prefer to be able to receive guidance from a financial pro. This sets Betterment apart from many other competing robo-advisors.
Alternatively, though, Betterment is primarily a robo-advisor, so this isn’t the best choice for hands-on investors.
While Betterment IRAs do have a minimum required deposit, it’s tiny, at just $10. Betterment does charge fees, however. Its IRAs start at $4 a month, but that changes to a 0.25% annual fee if your balance is more than $20,000, or if you set up recurring monthly deposits that total $250 or more. Also, you can upgrade to Betterment Premium for an additional 0.15% add-on fee to receive on-demand support from a Certified Financial Planner™. Upgrading requires a $100,000 minimum balance required in cash, stocks, bonds, or crypto holdings.
- Betterment rollover IRAs give you the tools, inspiration, and support you need to become a better investor.
- Start with as little as $10 and use the top-rated mobile app to set up automatic investing into diversified ETF portfolios.
- By upgrading to Premium, you can unlock unlimited financial guidance from a Certified Financial Planner™.
- Hands-off investment management
- Diversified portfolio that automatically rebalances
- Low-cost investment selection
- High account fees
- Limited investment selections
Related: 11 Best Stock Trading Apps [Free + Paid]
5. Robinhood (Best Rollover IRA for Deposit Bonus)
- Account minimum: None
- Minimum initial deposit: None
- Fees: No annual, opening, or closing fees
Many employers offer the benefit of matching contributions with 401(k) accounts. So, your employer might match, say, 1%, 2%, 3%, or some other percentage of whatever money you contribute to your 401(k). This is an extremely helpful benefit that helps accelerate your retirement savings.
Thing is, once you leave that employer, you don’t receive the match anymore. And while common with 401(k)s and other employer-sponsored accounts, IRAs historically haven’t included them because they’re individual accounts—you and you alone are responsible for making contributions.
Robinhood, however, has pioneered yet another game-changing feature—a contribution match for its traditional and Roth IRAs. If you open up an IRA with Robinhood Retirement, Robinhood will match 1% of any IRA transfers, 401(k) rollovers, and annual contributions to your account—and 3% if you pay for the Robinhood Gold service ($5 per month)—typically almost immediately after you make your contribution. So if you contribute $5,000 to your IRA this year for example, Robinhood will add an additional $50. While a 1% match doesn’t seem like a lot, it can add up significantly if you contribute regularly and leave your money invested for several years.
I’ve put together a thorough review of rollover IRA providers, and Robinhood is the first major brokerage I’ve come across to offer a match on contributions made into their IRAs. But it’s hardly Robinhood’s first pioneering move. Remember, this online stock broker for beginners jumped into the investing public’s consciousness in 2013 when they rolled out commission-free trading, which is now a staple for most investment accounts. They remain a standout option for cost-minded investors thanks to their continued $0 commissions on stocks, ETFs, and options, as well as for its fractional trading, which allows people to invest with as little as $1.
Robinhood doesn’t charge any management or advisory fees for its IRAs, and there’s no minimum balance requirement either. If that sounds like a deal to you, consider opening your Robinhood rollover IRA today.
- Robinhood is an investing app that became famous for offering commission-free trades on stocks, ETFs, options, and cryptocurrency.
- Robinhood will match 1% of any IRA transfers or 401(k) rollovers, as well as any annual contributions*, made to your Robinhood Retirement account—and you can get a 3% match on any new contributions if you subscribe to Robinhood Gold.
- Robinhood Gold paid subscription service includes Level II market data provided by Nasdaq, higher interest rates on uninvested brokerage cash, lower margin trading rates, and bigger Instant Deposits.
- Special offer 1: Earn 1% on any transfers from an external brokerage account to a Robinhood joint or individual investing account (2% if the margin balance is at least $10,000). Offer ends Oct. 27, 2024.
- Special offer 2: Robinhood Gold subscribers earn a 3% match on IRA transfers. Offer ends Oct. 27, 2024.
- 1% match on rollovers, IRA transfers, and new contributions to IRAs and Roth IRAs (3% new-contribution match with Robinhood Gold)
- Automated recommended portfolios
- Intuitive interface
- Extensive educational library
- No mutual funds
- No robo-advisor functionality
Related: 13 Best Robinhood Alternatives
6. E*Trade (Best IRA Account for No-Load Mutual Funds)
- Account minimum: None
- Minimum initial deposit: None
- Fees: No annual, opening, or closing fees
E*Trade from Morgan Stanley is a low-cost online brokerage featuring an array of investment choices. And if you’re looking to roll over your employer-sponsored retirement account, it offers traditional and Roth IRA options.
For self-directed investors, E*Trade offers the option to choose and manage your own rollover IRA investments. In addition to mutual funds, you can invest in stocks, ETFs, bonds, CDs, options, futures, limited margin, and more. And if you prefer to be less hands-on, you can also get access to a managed portfolio for as little as $1.50 or 0.30% each year. But there’s an initial $500 deposit requirement.
In addition to having no management fee, E*Trade also offers commission-free trading of stocks and ETFs, as well as a number of no-trading-fee, no-load mutual funds. Also convenient is the ability to make recurring investments of as little as $25.
Overall, a rollover IRA from E*Trade is a contender if you’re seeking a low-cost investment platform that lets you invest in mutual funds without a large sum of money or have interest in using limited margin or accessing futures in your account.
- E*Trade rollover IRAs benefit from operating through one of the best online and mobile trading platforms among discount brokers. Account holders can invest in stocks, ETFs, mutual funds, options, bonds, even futures.
- $0 commission trading for online U.S.-listed stocks, ETFs, options, mutual funds, and Treasuries.
- Automate your investment through E*Trade Core Portfolios, which charges $1.50 or 0.30% annually. (Minimum $500 investment required.)
- Opening an account is easy and only takes a couple of minutes.
- No annual, opening, or closing fees
- Very good selection of available investments
- Commission-free mutual funds and Treasuries
- Automated portfolio builders and prebuilt mutual fund and ETF portfolios
- Separate apps for power users and casual users
- Limited availability of fractional shares (only in DRIP plans or robo-created portfolio)
Related: 7 Best Stock Portfolio Management Software Tools + Apps
7. Vanguard Personal Advisor Services (Best for Large Balances)
- Account minimum: None
- Minimum initial deposit: $0
- Fees: $25 annual fee, no opening or closing fees
If you have an existing IRA or employer-sponsored account with a large balance, you might consider rolling over that amount into a Vanguard IRA.
A Vanguard rollover IRA offers access to commission-free trades of individual stocks and ETFs plus the ability to trade more than 3,000 no-transaction-fee mutual funds. And while that’s a sizable universe of mutual funds that come without transaction fees, the company also has mutual funds that fall outside this group, with transaction fees ranging from $8 to $50 per trade. And while there aren’t any account minimums to open a rollover IRA with Vanguard, most Vanguard mutual funds carry minimum investment requirements, often starting at $1,000 at Vanguard. Individual stocks and ETFs only cost whatever a single share costs—Vanguard doesn’t offer fractional shares.
The first time I saw that Vanguard—which is renowned for pioneering low-cost investing—charged a steep $25 annual fee for its IRAs, I did a double-take. But don’t worry: All you have to do to get the fee waived is sign up for e-delivery of statements, the annual privacy policy notice, and various other updates. In other words: Unless you insist on paper communications, Vanguard’s rollover IRA is effectively fee-free.
For investors with balances of $50,000 or more, Vanguard offers Personal Advisor Services, providing the benefits of a robo-advisor with access to a fiduciary advisor that can offer guidance on your investments. Advisors are available to assist you from Monday through Friday, 8 a.m. to 8 p.m. Eastern.
Vanguard charges a relatively affordable management fee of 0.30% annually for its Personal Advisor Services. But the peace of mind that comes with being able to get guidance from a financial pro could be worth the cost.
With a Rollover IRA from Vanguard Personal Advisor Services, you can choose to invest in mutual funds, ETFs, stocks, bonds, CDs, and more. For investors interested in the robo-advisory services but without the assistance from a financial planner—and perhaps with less initial retirement capital to start investing through the famed investment company ($3,000 minimum)—Vanguard also offers its Vanguard Digital Advisor service for an 0.20% annual fee for an all-index investment option of 0.25% for an active/index mix, depending on your elections.
- Vanguard's low-cost mission continues through its commission-free rollover IRAs.
- Vanguard rollover IRA account holders can invest in stocks, ETFs, and Treasuries with zero commissions. They can also pay $0 to trade Vanguard mutual funds and no-transaction-fee mutual funds. Individual bonds and CDs are also available through the rollover IRA.
- Vanguard's mobile app is simple and easy to understand.
- No annual, opening, or closing fees*
- Good selection of available investments
- Commission-free Treasuries
- Some commission-free mutual funds
- Can purchase fractional shares of mutual funds
- Can optimize your portfolio with Vanguard Portfolio Watch
- Must opt out of paper communications to avoid annual fees
- Limited investing and research tools
- Somewhat clunky web interface
- High options contract fees
- Limited features on mobile app
- No fractional shares of stocks or ETFs unless reinvesting through a DRIP plan
Related: 11 Best Alternative Investments [Options to Consider]
8. Charles Schwab (Best Robo-Advisor for Cost)
- Account minimum: None
- Minimum initial deposit: None
- Fees: No annual, opening, or closing fees
Leading investment firm Charles Schwab has over $645 billion in assets under management, and it provides just about every investment service and account type an investor could want—including the humble rollover IRA.
A self-directed rollover IRA from Charles Schwab comes with no minimum deposit requirements nor commissions on online listed equity trades. In addition to individual stocks and ETFs, they also offer access to no-transaction-fee mutual funds (and transaction-fee funds as well), futures, fixed-income investments, and options. Have any questions? Schwab provides 24/7 support to its account holders, which provides some peace of mind.
Schwab also offers assistance managing your portfolio with its in-house robo-advisor solution: Charles Schwab Intelligent Portfolios. Intelligent Portfolios stands apart from some of the other offerings in my rollover IRA review by charging no advisory fees or commissions. An account minimum of $5,000 does apply, though, so if your 401(k) balance is small, another robo-advisor could be a better choice. Still, if you can meet its account minimum without an issue, this account is a low-cost option that provides both convenience and perks like automatic tax-loss harvesting.
Schwab also offers a Premium service that includes unlimited guidance from a financial professional. Premium requires a $25,000 investment and charges a one-time planning fee of $300, as well as a $30 monthly advisory fee.
- Charles Schwab rollover IRAs charge no opening or closing fees, nor any account fees, and have no minimum required investment, making them a low-cost way to save for your retirement.
- Enjoy access to a wide variety of investment options, including zero-commission trading of stocks, ETFs, thousands of mutual funds, U.S. Treasuries, and new bond issues.
- Want to leave your investment decisions up to the pros? Charles Schwab Intelligent Portfolios are pre-built, diversified ETF-only portfolios with automatic rebalancing and 24/7 account support. This service charges no advisory fees but does require a $5,000 account minimum.
- No annual, opening, or closing fees
- Very good selection of available investments
- Commission-free trading on stocks, ETFs, new bond issues, U.S. Treasuries, and thousands of mutual funds
- Fractional shares only available on S&P 500 stocks
- Lackluster educational tools
Related: Best Charles Schwab Alternatives [Competitors to Schwab]
9. TD Ameritrade IRA (Best for Free Investment Research Reports)
- Account minimum: None
- Minimum initial deposit: None
- Fees: No annual, opening, or closing fees
TD Ameritrade is one of the largest discount brokerages in the United States, with nearly 11 million client accounts. It offers an array of financial products and services, including a traditional rollover IRA for those interested in transferring a 401(k) over from a former employer. This IRA comes with no minimum deposit requirement and no annual account management fees, making it a good choice if you have a small balance to transfer and you want to keep your costs down.
Beyond its affordability, TD Ameritrade account holders also receive access to a wealth of in-depth research reports. You’ll enjoy a Premier List report highlighting Morningstar Research Services‘ top mutual funds, as well as technical market analysis, stock screeners, charts, market news, and more.
Editor’s Note: TD Ameritrade is among the best investing apps for people of all experience levels. But some massive changes are afoot that would-be new TD users should know about before diving in.
Charles Schwab announced in 2019 that it would acquire TD Ameritrade, and it closed on the deal in 2020. While it has allowed the TD Ameritrade system to operate independently since then, Schwab announced that in 2023, it would be migrating existing TD accounts over to Schwab—which means if you open a TD account now, you’ll be using Schwab’s platform by the end of the year.
- TD Ameritrade is a commission-free broker that provides an all-around solid experience for beginner, intermediate, and advanced investors alike.
- With TD Ameritrade's rollover IRA, you can invest in a wide variety of products, including stocks, ETFs, mutual funds, bonds, CDs, and annuities. With permission, you can also trade options and futures within your IRA.
- An unusual situation for users: Schwab's acquisition in TD Ameritrade will result in clients' accounts being migrated over to Schwab's platform this year. Users will still be able to use Thinkorswim, however.
- Migration to Schwab includes some benefits, including more no-fee mutual funds, more initial access to international exchanges, and better margin rates than at TD Ameritrade.
- Excellent selection of available investments
- Commission-free Treasuries
- Some commission-free mutual funds
- Thinkorswim trading platform with powerful technical analysis and trading tools
- Separate apps for power users and casual users
- Extremely high margin rates
- Extremely high mutual fund fees for no-load, transaction-fee mutual funds
- User experience will change soon: Main TD brokerage platform will soon be migrated to Schwab's main brokerage platform
Related: 9 Best Stocks for Beginners With Little Money
10. Wealthfront (Best Robo-Advisor for Small Balances)
- Account minimum: None
- Minimum initial deposit: $500
- Fees: 0.25% annual management fee; no opening or closing fees
Wealthfront is a popular robo-advisor that offers a traditional IRA rollover option for investors who want to transfer an existing 401(k) balance.
While some of its robo-advisor competitors have a relatively high minimum balance requirement of a few thousand dollars, Wealthfront requires a fairly small initial deposit of $500 to open an account. (Again, that’s high for an IRA, but low for a robo-advisory product.) So if you don’t have a huge sum invested in your 401(k), this account might be a good choice.
Wealthfront offers some valuable perks with its IRA, including automatic tax-loss harvesting, automatic rebalancing, automatic trading, and the option to customize your expert-built portfolio.
If you’re considering putting this on your shortlist, just note that Wealthfront does charge a 0.25% annual management fee across the board. That’s more affordable than some robo-advisor IRAs, but it’s also not free.
- Wealthfront provides the power of robo-investing for rollover IRA investors with a small starting deposit ($500 minimum).
- Answer just a few questions, and Wealthfront will build you a portfolio of low-cost index ETFs from up to 17 different asset classes, then manage rebalancing and trading as long as you have the account.
- Low minimum investment for a robo-investing product
- Tax-loss harvesting
- Few investment choices
- High minimum investment for a rollover IRA
Related: 8 Best Empower (Personal Capital) Alternatives
What Is an IRA?
An IRA is a tax-advantaged account that allows individuals to save for retirement without help from an employer. IRAs come in many different forms, such as traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs.
Traditional IRAs and Roth IRAs are the most common types of IRAs (SEP and SIMPLE IRAs are for small business owners and self-employed people). A traditional IRAs is a type of “pre-tax” retirement account, since contributions to the account are generally tax-deductible (i.e., they’re made before income tax is imposed on the money). Funds in the account grow on a tax-deferred basis, so they aren’t subject to tax until they’re withdrawn.
With a Roth IRA, which is an “after-tax” retirement account (i.e., contributions are made after income tax is imposed on the funds), there’s no tax break when you put money into the account. However, withdrawals are generally tax-free because you pay taxes on the initial contributions, which then grow tax-free.
Related: IRA vs. 401(k): How These Retirement Accounts Differ
What Is a Rollover?
A rollover is when funds from an existing retirement plan are moved to a new retirement plan. Rollovers can take place between two similar accounts (e.g., IRA to IRA), or they can take place between different types of retirement plans (e.g., 401(k) to IRA).
When a rollover occurs, you withdraw cash or other assets from one eligible retirement plan and contribute all or part of it to another eligible retirement plan. If done properly, the transaction generally isn’t taxable, unless the rollover is from a pre-tax account to an after-tax account (e.g., from a traditional IRA to a Roth IRA).
In addition, if you don’t roll over the entire amount withdrawn, you must include any taxable amount of the distribution that isn’t rolled over in your taxable income for the year of the withdrawal.
Related: Retirement Saver’s Tax Credit: What Is It, How Much, Who’s Eligible + More
Can You Roll Over Your 401(k) or Other Retirement Savings Into an IRA?
Yes, you can roll over your 401(k) account or other retirement savings into an IRA. In fact, this is a great way to consolidate all of your retirement savings into one account, making it easier to track and manage. Additionally, you might be able to take advantage of more investment options with an IRA than what’s available in your current 401(k) retirement plan.
Related: Should You Max Out Your 401(k) Each Year?
What Is the Difference Between an IRA and a Rollover IRA?
The main difference between a “regular” IRA and a rollover IRA is that a rollover IRA receives its initial funds from another qualified retirement plan, not from contributions you make that count toward your annual contribution limit.
YATI Tip: For the 2023 tax year, the annual contribution limit for an IRA is $6,500 if you’re under age 50, or $7,500 if you’re 50 or older.
As a result, when you do a rollover into an IRA, if the money coming into your new account was tax-deferred in the previous retirement account (i.e., it’s coming from a traditional, pre-tax account), it will continue to be tax-deferred in the new IRA. Likewise, if you’re rolling over money from a Roth retirement account into a Roth rollover IRA, the money continues to be tax-free.
Furthermore, depending on your situation, there might be other differences between a regular IRA and a rollover IRA, such as the types of investments available.
Related: How Are Social Security Benefits Taxed?
What to Consider When Choosing a Rollover IRA Brokerage Account
If you’ve decided to roll over an old 401(k) account into an IRA brokerage account, here are some of the things you want to consider when picking a broker.
Investment Options
Investment options are one of the most important factors to consider when choosing a rollover IRA. Make sure you choose an account that offers a wide array of investments for your IRA funds, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), money market funds, annuities, and other choices.
Costs
Broker commissions have largely gone the way of the dodo bird these days. However, that doesn’t mean there aren’t other costs to consider, such as monthly recurring account fees, annual fees, and the like. Be on the lookout for a brokerage account with low (or no) such fees.
Another important item to consider with a retirement account is the array of available no-transaction-fee mutual funds. Many brokers charge trading fees for mutual funds, so finding a broker that offers no transaction fees on mutual fund trades can help your returns over time.
Automated Investing
A robo-advisor is a type of automated investment tool that provides financial planning, portfolio management, and other services without the need for direct human interaction.
Many robo-advisors employ modern portfolio theory, which distributes investments across different asset classes to help reduce overall risk while maximizing potential returns.
Determine if the account allows investors to manage their portfolio actively or if it is a passive investment option that follows pre-set rules.
Related: Best Investments for Roth IRA Accounts
What Choices Do You Have With Your 401(k) When You Leave a Job?
When you leave a job, what should you do with the money in your former employer’s 401(k) plan? You generally have four options.
1. Leave It In Your Former Employer’s 401(k) Plan
You might be able to leave your money right where it is—in your former employer’s 401(k) plan. You might have to maintain a minimum balance to keep your account in good standing, but it otherwise might make sense to keep your money where it is if it’s growing at a good rate.
2. Cash Out Your 401(k) Account
Cashing out your 401(k) plan might trigger serious financial consequences, such as being hit with a 10% penalty and a bigger tax bill. The funds you withdraw are also no longer invested in the market and, therefore, lose any potential growth or gains in the future. As a result, it’s usually better to leave your funds in the plan or to roll them over into another retirement account.
3. Roll It Over Into Your New Employer’s 401(k) Plan
You can typically roll over the money in your old 401(k) account into your new employer’s 401(k) plan. You will have to complete a direct transfer form and give it to your previous employer’s plan administrator. Once this is done, the assets in your old plan will be transferred directly to the new one.
This process is often seamless and tax-free. However, it’s important to note that some employers won’t permit a direct rollover, so check with both employers before initiating the transfer.
4. Roll It Into a Rollover IRA
Taking this route will entail opening a rollover IRA account to receive the funds you transfer from your old employer’s 401(k) plan. This will often expand the options for your retirement investments beyond what’s customarily offered with a 401(k) plan.
Related: How Much Should I Contribute to My 401(k)?
What Are the Advantages of a Rollover IRA?
Here are a few good reasons why you should transfer your old 401(k) funds into a rollover IRA.
You Can Consolidate Retirement Funds In One Place
You can consolidate retirement savings from multiple accounts into a single rollover IRA. Having all of your funds in one place can make it easier to see your full financial picture and manage your retirement planning. Further, it can lower the administrative hassle of managing multiple accounts, fees, investment options, and account credentials.
You Can Avoid Extra Taxes and Penalties Associated With Cashing Out
If your only options are to cash out a 401(k) plan from your previous employer or roll the money over into an IRA, picking the rollover option might save you money on taxes and penalties.
If you have a pre-tax 401(k) account, you’ll have to pay income taxes on the amount withdrawn if you cash out. However, you can avoid paying taxes on that amount if you transfer the money to a traditional rollover IRA.
In addition,cashing-out your old 401(k) account might also be treated as an early distribution if you’re not yet 59½ years old. As a result, you could be hit with a 10% early withdrawal penalty.
You Can Gain a Wider Array of Investment Options
Generally, IRAs offer broader investment options when compared to their 401(k) counterparts. Investment options in a 401(k) are generally chosen by the provider and employer, and these options often consist of a limited selection of mutual funds.
With an IRA, on the other hand, you could have access to stocks, bonds, ETFs, mutual funds, and more, depending on the company you choose.
If you need help picking the right investments, certified financial planners and other types of financial advisors can help.
Related: How to Use Your HSA for Retirement
What Are the Disadvantages of a Rollover IRA?
Depending on your retirement planning goals, a rollover IRA might not be the best option for you. Here are some considerations that might steer you away from a rollover IRA.
If You’re Not Careful, You Could Still Face Taxes and Penalties
To properly roll over 401(k) funds to an IRA, you must transfer the money within 60 days after you receive it if you opt for an indirect rollover (i.e., you’re sent a check made payable to you). If you miss the deadline, the withdrawal from your 401(k) plan is treated as a regular distribution subject to taxes and, if you’re not 59 ½ years old, the 10% early withdrawal penalty.
In addition, 20% must be withheld from an indirect rollover and sent to the IRS to cover income taxes. Plus, you have to come up with that 20% out of your own pocket when you deposit the rollover funds into your new IRA within the 60-day period (although you’ll get it back later when you file your tax return for the year).
YATI Tip: You can avoid the 60-day requirement and withholding with a direct rollover, which is where the 401(k) plan administrator either forwards your money directly to the IRA provider or sends you a check that’s made payable to the IRA.
You Lose Access to 401(k) Loans
401(k) plans can offer loans against your account balance. By transferring your 401(k) to an IRA, you lose the ability to borrow against those retirement funds.
You Lose Creditor Protections Available to 401(k) Plans
401(k) plans enjoy special protection from creditors should you encounter financial difficulties (including in bankruptcy). Under the federal Employment Retirement Income Security Act (ERISA), creditors can tap your 401(k) funds to settle claims against you.
On the other hand, your IRA might be protected against creditors under state laws where you live. And while IRAs are protected under federal law in bankruptcy, your IRA is only protected up to a certain amount ($1,512,350 until April 1, 2025).
You Can Delay Access to Funds If You’re Retiring Between Ages 55 and 59½
When you withdraw money from a pre-tax 401(k) plan before turning 59½, you generally encounter a 10% penalty. One exception to this rule is if you leave your job when you’re at least 55 years old, in which case you can take a penalty-free withdrawal from your 401(k).
Rolling your 401(k) funds to an IRA means you’ll have to wait until you’re at least 59½ years old to access that money without paying the penalty.
Related: Can I Retire at 60 with $500K?
Is a Rollover IRA a Good Idea?
If you have a 401(k) account from a previous job, consider the above benefits and drawbacks of rolling over the money into an IRA. If it simplifies your retirement planning and reduces the number of brokerage accounts you need to track with online brokers, moving the funds to an IRA is often a good idea.
Make sure to factor in any account minimums or fees, too. The best IRA accounts also offer access to no-load and no transaction fee mutual funds, minimizing your account fees and other costs that can drag on your account returns.
Related: SEP IRA vs. Roth IRA: What’s the Difference?
Related Rollover IRA Questions
Not quite sure yet what to do with your old 401(k) account? Here are answers to a few additional questions about rollovers to an IRA.
Can you roll over a Roth 401(k) to a Roth IRA?
Yes, you can roll over a Roth 401(k) to a Roth IRA. When doing so, it’s important to make sure the funds are transferred directly from one account to another or you complete an indirect transfer within 60 days. This will help ensure that taxes and/or penalties are not incurred during the process.
How do I avoid taxes on a 401(k) rollover to an IRA?
In addition to making sure you follow the rules for direct or indirect rollovers, you can avoid taxes on a 401(k) rollover to an IRA by transferring the funds to a similarly-taxed type of retirement account.
For instance, there’s generally no tax if you transfer money from a traditional 401(k) to a traditional IRA, or from a Roth 401(k) to a Roth IRA. However, if you move money from a traditional 401(k) to a Roth IRA, you’ll owe taxes on the amount transferred for the tax year that the rollover is completed.
How much does it cost to roll over a 401(k) to an IRA?
There’s typically no fee for transferring money out of a 401(k) account and into another retirement account. Depending on the size of your rollover, a traditional or Roth IRA provider might even offer a deposit bonus or other type of promotion to encourage you to move your 401(k) funds to an account with them.
However, there could be hidden costs with a rollover in the form of higher fees. Retirement accounts are not created equal, and you could end up paying more in fees with an IRA than with your previous employer’s 401(k). So, be sure to contact the financial institution that you’re dealing with to determine potential fees or costs associated with a rollover IRA before transferring money into a new retirement account.
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