A Roth IRA is a popular way to save for retirement. It acts like a savings account, but generates a much higher profit and is designed to compound and grow for many years until the owner reaches retirement age. The profit that is earned is reinvested in the Roth IRA account until it matures to a set date (when the person wants to retire).

Money contributed to a Roth IRA is done on an after-tax basis. This means that you won’t have to pay taxes on the earnings when you want to withdraw from the account. In comparison, a 401(k) retirement account receives contributions before taxes are paid, so you have to pay taxes on them when you withdraw funds.

Roth IRAs also offer more flexibility than a 401k because you can withdraw the funds without the huge penalties before retirement (if you meet their criteria), where as withdrawals from a 401k before retirement results in high penalties and income tax implications.

Roth IRAs do not require that you begin withdrawing your money by a certain age. You are able to keep contributing to it for as long as you want to. Even if you have no intention of ever withdrawing the money, your beneficiaries will inherit it with no penalties attached to the money. They are able to keep the Roth IRA to let it keep collecting interest, or withdraw the funds – tax free.

There are some restrictions on Roth IRAs though. If you are single and make more than $110,000 per year, or if you are married and file taxes jointly, and earn more than $160,000 per year (or more), you’re not able to contribute to a Roth IRA. This doesn’t mean you can’t save for retirement, there are many other options available for you to set up a retirement fund too, just not with a Roth IRA. On the other end, if you only make $3,000 per year, you are only able to contribute (at most) $3,000 per year to a Roth IRA. For everyone else, you are able to contribute a set amount (determined by age) annually.

Depending on your financial situation, a Roth IRA may be a great single, or additional retirement plan for your future. It is always best to get started saving money for retirement right away, and with compounding interest it will only help you save more if you start sooner. If you work at a place that matches or gives a percent on a 401(k) plan, it is always advised to do that too, who doesn’t like free money from their employer?

If you have lost your job or are looking for a change, don’t forget about the 401k account you have with your current employer. You are still entitled to take the funds with you when you leave a job but you need to manage the account the right way to get the maximum gain.

Many people make the mistake of taking the money out of the account. They end up paying much in penalties for early withdrawal and deplete their own accounts for retirement unnecessarily because they don’t know what else to do. So what should you do with the money you’ve been stocking away?

Rolling Over Your 401k
In order to keep the money you have in your retirement account, you can opt to rollover the funds into another account without having to pay taxes or penalties on the amount. You can choose from a number of options for rolling over your 401k account including your new employer’s 401k plan, IRAs, Roth IRAs, and Mutual Funds.

How to Rollover the Funds

Contact Old Provider
Check with your old 401k provider for eligibility rules. You’ll want to make sure there are no fees or requirements involved with rolling over your funds into a new account. You also need to make sure that your status is listed as a terminated employee because funds can not be released unless you are terminated. Sometimes an employer will fail to update the provider so knowing upfront that all is in order will help make the rollover process smoother.
 
Contact New Provider
You’ll need to contact the new provider of the account to find out the protocol for rolling over your money. Even if you are not rolling your money into another employee-sponsored account, there will still be paperwork to submit so you’ll need to know the rules of the new provider. Ask for the information you will need to give to your old provider to initiate the transfer of funds.

Fill Out the Forms
Your 401k provider should send you the paperwork necessary. Once you receive the documents fill them out completely and return them to your provider. Some providers will only require documentation from the new provider and you won’t have to do anything. You will also need to submit paperwork to the new provider. The key to a successful rollover is to fill out forms completely the first time to prevent delays. Provide accurate information about where the money is to be transferred.

Make Sure You Follow Up
Follow up by phone to find out the status of the transfer if you have not received correspondence from the provider within a few weeks. Never assume the money was transferred as scheduled. It is smart to confirm the funds are where they are supposed to be. It can be easy to forget about money that you virtually never see so check with the new provider to verify the money transfer has been completed.