Decide on a Roth or traditional IRA

Choosing an IRA for your rollover depends on your specific goals along with a few other factors, such as your taxes, earned income, and age.

 

Eligibility
Which type of IRA can I use for my rollover?

ROTH IRA

You must roll over into a Roth IRA (tax-free) if you were previously investing in a Roth 401(k) or Roth 403(b) where you worked.

You can also roll over into a Roth IRA if you were previously investing in a traditional 401(k) or 403(b), but this will be considered a Roth conversion and you’ll have to pay taxes.

 

TRADITIONAL IRA

You can roll over into a traditional IRA (tax-free) if you were previously investing in a traditional 401(k) or 403(b) where you worked.

You can’t roll over into a traditional IRA from a Roth 401(k) or Roth 403(b).

 

 

Is there a limit on how much I can roll over?

ROTH IRA

While there’s no maximum limit on how much you can roll over, each fund family may have it’s own minimum investment requirement.

 

TRADITIONAL IRA

While there’s no maximum limit on how much you can roll over, each fund family may have its own minimum investment requirement.

 

Additional contributions

 

ROTH IRA

TRADITIONAL IRA

 

 

Can I contribute more to the IRA after my rollover?

ROTH IRA

Yes, but the amount of your contribution can’t exceed the amount of income you earned that year (or that your spouse earned, if you’re not working anymore).

You’re also subject to annual Roth IRA limits ($5,500 for the 2015 tax year, $6,500 if you’re age 50 or older). And those limits are reduced—and gradually phase out—as your modified adjusted gross income increases. Also, there are no age limits on Roth IRA contributions.

Please note: There may be special tax considerations when you combine rollover assets with new contributions in one account, otherwise known as commingling.

 

TRADITIONAL IRA

Yes, as long as you’re under age 70½.

Also, the amount of your contribution can’t exceed the amount of income you earned that year (or that your spouse earned, if you’re not working anymore). In addition, you’re subject to annual traditional IRA limits ($5,500 for the 2015 tax year, $6,500 if you’re age 50 or older).

Please note: There may be special tax considerations when you combine rollover assets with new contributions in one account, otherwise known as commingling.

 

Can I deduct future contributions on my taxes?

ROTH IRA

No.

 

TRADITIONAL IRA

Possibly—it depends on whether you or your spouse is already covered by a retirement plan at work.

If either of you are, the amount of your deduction, if any, will depend on your income.

For details, visit irs.gov:

If you are covered by a retirement plan at work 

External site

If you aren’t covered by a retirement plan at work 

External site  

 

Withdrawals

 

ROTH IRA

TRADITIONAL IRA

 

 

Are there required minimum distributions?

 

ROTH IRA

No.

 

TRADITIONAL IRA

Yes, starting the year you reach age 70½

 

Will I pay taxes on withdrawals?

ROTH IRA

You’ll never pay taxes on withdrawals of your contributions.

And you won’t pay taxes on withdrawals of your earnings as long as you take them after you’ve reached age 59½ and owned the account for at least 5 years.*

 

TRADITIONAL IRA

You’ll pay ordinary income tax on withdrawals of all earnings and on any contributions you originally deducted on your taxes.

 

What’s the penalty if I take a withdrawal before I reach age 59½?

ROTH IRA

There are no penalties on withdrawals of your contributions.

There’s a 10% federal penalty tax on withdrawals of earnings unless an exception applies.

 

TRADITIONAL IRA

There’s a 10% federal penalty tax on withdrawals of both contributions and earnings unless an exception applies.

Start your rollover online

 

FOOTNOTE

*The 5-year holding period for Roth IRAs starts on the earlier of: (1) the date you first contributed directly to the IRA, (2) the date you rolled over a Roth 401(k) or Roth 403(b) to the Roth IRA, or (3) the date you converted a traditional IRA to the Roth IRA. If you’re under age 59½ and you have one Roth IRA that holds proceeds from multiple conversions, you’re required to keep track of the 5-year holding period for each conversion separately.

You may wish to consult a tax advisor about your situation.

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