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Five ways to make the most of your rollover IRA

Moving your money from an old workplace plan to a rollover IRA can offer many advantages. Over time, it can make your retirement savings easier to manage, introduce new investment opportunities, and help you ensure that your nest egg continues to grow on a tax-deferred (traditional IRA) or tax-free (Roth IRA) basis. But if you know your way around your rollover IRA, there could be even more potential benefits to be gained. Here’s how you might be able to access a few of them.

1 Keep in mind that you can put more money into your rollover IRA

Although you may have moved a substantial amount of money from your old workplace plan to your rollover IRA, you’re free to contribute more in the future. Your options include:

Making personal IRA contributions up to the yearly annual limits set by the IRS

The regular 2023 limit is $6,500, with an extra $1,500 catch-up contribution limit if you’re 50 or older. (There’s no age limit for contributing to an IRA.) You may be able to deduct some or all of your contribution on your income taxes, depending on how much you earn and whether you’re currently eligible for a workplace retirement plan.

No matter how many old accounts you move into your rollover IRA—or how large those accounts might be—these transactions won’t affect your yearly contribution amount.

2 Consider automating your account for even more freedom

Ease and flexibility are popular reasons for considering a rollover IRA. But as you may discover, there could be even more conveniences available to you if you decide to register on your provider’s website and download/activate their mobile app, if available.

These features, tools, and resources may include the ability to:

  • Check your daily balance at a glance
  • Track your progress toward your retirement goal—including your account growth and returns over various periods
  • Make updates to your investments
  • Access account statements and tax forms electronically
  • Take advantage of online learning, interactive planning tools, and advisory services to help with retirement planning

3 Know where your rollover IRA fits into your retirement strategy

Your rollover IRA is one source of potential retirement income, meant to work alongside your current workplace retirement plan, other IRAs and personal savings/investment accounts, pensions, annuities, and Social Security benefits.

As you approach retirement, you may start seeing your rollover IRA less as a way to build for the future—and more as a way to manage your savings, create cash flow, and continue to invest. And that’s OK, because a rollover IRA is built for all these purposes.

4 Understand the rules for withdrawing money from your rollover IRA

Your rollover IRA applies the same withdrawal rules as a workplace plan. Assuming you chose a traditional (tax-deferred) IRA, you’ll typically owe income taxes for the year you take your money out, regardless of how old you are. If you’re under 59½, you’ll also pay a 10% tax penalty.

You may be able to take penalty-free withdrawals for some expenses, such as a first home purchase, birth, adoption, or college, but you’ll still pay regular income taxes.

At age 73, you’ll have to start taking required minimum distributions—yearly withdrawals based on life expectancy.

5 Be aware that your rollover IRA can help provide for flexibility in retirement withdrawals

Part of retirement income planning is deciding the best way to access your retirement savings based on your situation. This is called your drawdown strategy.

As a retiree, you can use different drawdown strategies, such as:

Systematic withdrawals Withdrawing the same dollar amount or percentage of account balance each year (e.g., 4%), with possible adjustments for inflation
Interest and dividends only Withdrawing the income that your investments generate, rather than selling shares
Time segmentation—or “bucketing” Using your rollover IRA’s investment options to create buckets of assets that you draw on at various time periods
Expense-based planning Using projected expenses to help decide the size and timing of your withdrawals

Be sure to get the full value out of your rollover IRA

Because it’s originally opened for a very specific purpose—as a next step for a workplace retirement plan balance—it’s easy to think of a rollover IRA in a limited way.

Actually, these accounts are full-fledged IRAs, offering a range of services and investment options. They’re also able to accept new money in the form of yearly contributions or rollovers from other old workplace plans or IRAs. And when it’s time to take retirement withdrawals, your rollover IRA may offer flexible options to suit your income strategy.

As with other important aspects of retirement planning, you may want to touch base with your financial or tax advisors before making any major decisions about your savings and investments.

As is the case with 401(k)s and other employer-sponsored retirement plans, IRAs are protected by federal bankruptcy laws, while state regulations may vary. Contact your legal advisor if you have questions.

There are advantages and disadvantages to all rollover options. You are encouraged to review your options to determine if staying in a retirement plan, rolling over to an IRA, or another option is best for you.

This content is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.

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