The investments within a Traditional IRA grow tax-deferred, meaning you won’t pay taxes on the earnings until you withdraw the money at retirement starting at age 59 1/2, and depending on your income and whether you or your spouse is covered by a retirement plan at work - your contributions may even be tax deductible. This means you can potentially lower your taxable income in the year you make the contribution.
Are your contributions tax deductible?
Rolling over an old workplace 401(k) into a Rollover IRA can make it easier to track your investments, consolidate your retirement savings, and potentially reduce fees.
Both Traditional and Rollover IRAs offer similar investment options and tax treatment. However, a key benefit of a Rollover IRA is that, when funded only with assets from a qualified employer plan - like a 401(k), 403(b) or even a defined benefit plan (DBP) - it is fully protected from creditors in bankruptcy, unlike contributory IRAs, which have a federal protection cap. Note that creditor protection outside bankruptcy depends on state law, and mixing rollover assets with other IRA funds may reduce protection.
You have 60 days to complete an indirect rollover to avoid taxes and penalties. The one-rollover-per-year rule applies only to IRA-to-IRA rollovers, not to rollovers from a 401(k) to an IRA. Using a direct rollover (trustee-to-trustee transfer) is recommended to avoid these restrictions.
There is also the personal benefit of taking control of your retirement assets and severing ties with a former employer.
