Consolidating 401 k accounts

Whatever the reason, it’s easy to reach a point where you have three or four IRAs, all sitting with different trustees.

Eventually, you come to a place where you want to merge them all into a single IRA.

It often happens as a result of job changes; you leave one job and roll an old 401(k) plan into an IRA.

Then you take another job with a 401(k), and maybe while you’re there you set up another IRA account, just because you can.

You should be able to merge old 401(k) plans into a new employer plan as long as it is permitted by the new employer plan.

And since the dollar amounts involved in 401(k) plans are often considerably larger than what they are for IRAs, it’s doubly important that you use the direct transfer method to avoid tax problems.

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Please keep in mind that rolling over assets to an IRA is just one of multiple options for your retirement plan.

Moral of the story: Never use a 60 day rollover method unless there is absolutely no other option. This is the rollover method you should use anytime you can, as it is the simplest way to merge IRA accounts, and creates virtually zero chance of incurring income taxes or early withdrawal penalties.

Under direct transfer, you simply complete the required paperwork that will enable your previous IRA trustee to make a direct transfer of IRA account proceeds into the new IRA trustee account.

This is especially true when you are merging like-kind retirement plans.

Just as is the case with employer-sponsored retirement plans, it’s pretty easy to reach the point you have more than one IRA account.

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