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To rollover or not to rollover, that is the question

If you’ve contributed to a workplace retirement plan and have since left your job, you would then be eligible to rollover your 401(k), 403(b), or 457 plan into a Traditional IRA. There are few reasons to consider a rollover, or not to, depending on your situation.

The workplace retirement plan is a good deal for workers. Modern plans require that the employer contribute to the plan in the form of a minimum match of 3% or flat 2% contribution per year. You can keep this money depending on the plan’s vesting schedule and if you’ve worked beyond this period. Employees have the option to defer part of their salary to the plan, up to $19,000, plus a ‘catch-up’ of $6,000 for people 50+, in 2019, annually. Contributions are tax-deductible if going into a pre-tax plan and will come out taxable in retirement.

A rollover of your workplace plan into an IRA may not be appropriate if you’re not ready to make investment decisions that can be more complex as a result of the limitless choices that come with an IRA. You may instead opt to transfer your old 401(k) into the 401(k) that you may be currently contributing to, although this depends on the rules of the current plan. This strategy may also be prudent if you’re still making Backdoor Roth IRA contributions, which are not possible when holding a Traditional IRA, as the tax-free nature of the conversion would go away.

There can be significant tax planning benefits that come with rolling-over a plan. Inside the IRA, you can make Roth conversions each year, controlling how much you want to convert, taking into consideration your marginal tax rate. This can be a great strategy if you leave your job in January, and don’t return to work immediately, theoretically keeping you in a low tax rate for the year.

At death, you can control how the funds are distributed, usually turning the IRA into a Beneficial IRA, allowing for heirs to pay tax over their lifetime. A 401(k) would instead send a check to the beneficiary, causing the immediate taxation of the full amount, charged to the beneficiary at their highest marginal tax rate.

At Eureka Wealth Management, risk tolerance and tax control are key considerations when going over the rationale for completing a rollover. Other reasons may be to have more control of the investment strategy, like investing socially responsibly or to increase diversification. And, importantly, be able to control the distributions of your savings during retirement, finding the most tax-advantageous strategy, something that wouldn’t possible with a workplace plan. If you would like help weighing your options, call for a free, initial consultation at (760) 537-0791 or book online at


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