Can You Roll An IRA Into A 401(k)?

Shawn Plummer

CEO, The Annuity Expert

The decision to roll over an IRA into a 401(k) is not always clear-cut. There are pros and cons to doing so, and it can be confusing what the right choice for you may be. If you’re interested in finding out more about rolling your IRA into a 401(k), we’ve got all the information that you need!

Can You Roll An IRA Into A 401(k)?

Yes, you can roll an IRA into 401(k) if the 401(k) provider allows it.

Rollovers generally occur in one direction, from an employer plan like a 401(k) or 403(b) to an Individual Retirement Account (IRA) when you leave a previous employer.

A reverse rollover occurs when an IRA holder rolls over money from their retirement account into a 401(k).

How to Do an IRA Rollover to a 401(k)

  • Check if your new 401(k) retirement account will accept what you want to invest in.
  • Request a distribution from your IRA. Select “direct rollover” on the transfer form, and the IRA administrator will send an electronic transfer or a check directly to the 401(k) provider.

Indirect Rollovers

  • Let the two companies conduct the transfer, and do not request a check personally, as this will trigger an “indirect rollover.”
  • If a check is written to you from the IRA provider, you have 60 days to place it into the 401(k) without the IRS labeling the rollover as a “distribution.”
  • The account administrator must deduct 20% of your account balance for federal tax withholding.

How To Report the Rollover on Your Tax Return

  • You must report any transaction when you submit your annual tax return for direct and indirect rollovers.
  • Your IRA brokerage will send you a Form 1099-R showing how much money you took out of your IRA.
  • On your 1040 tax return, report the amount on the line labeled “IRA Distributions.” The “Taxable Amount” you record should be $0. Select “rollover.”

Pros And Cons

Pros

  • Easier to maintain: Consolidating retirement accounts into one account.
  • 72(t) Distribution: If you leave your job, you could start tapping your 401(k) as early as age 55 with a 72(t) distribution. Qualified distributions can’t begin until 59½ unless you start a series of substantially equal distributions of at least one distribution per year for at least five years or until you turn 59½, whichever comes last.
  • Larger contribution limits: In 2023, the contribution limit is rising to $22,500 ($30,000 for those over 50) for a 401(k) and $6,500 ($7,500) for an IRA.
  • 401(k) loans: If you need money and there is nowhere to get it, you might be able to borrow from your 401(k). You will then pay yourself back with interest.
  • You may be able to retire later: You have to take money out of your IRA account when you turn age 72. The same thing applies to a 401(k). But if you are still working, you can wait until retirement.

Cons

Higher Fees: With a 401(k), you can’t choose the fee schedule. If they have high fees, your money will be less when you retire. With an IRA, you can pick a plan with low charges. You want to keep the IRA if you care about flexibility and low fees.

Fewer early withdrawal exceptions: IRAs are less strict than 401(k)s. You can withdraw your money from an IRA before age 59 1/2.

Fewer investment selection: 401(k) plans have fewer options than an IRA.

Reasons To Rollover An IRA To An Annuity

You can transfer an IRA to an IRA Annuity without a tax consequence, just like rolling over to a 401(k). Often debated among “financial experts” is whether an annuity should ever be used in a tax-qualified 401(k). Like an IRA, annuities provide income tax deferral. Therefore, placing an annuity inside a qualified retirement plan may initially seem redundant.

That might be true if an annuity’s only benefit is tax deferral. But, the fact is, annuities offer many advantages, whether held inside or outside an IRA.

Annuities are flexible investment products that can help you achieve your long-term financial goals and provide a source of retirement income. Tax deferral alone is not a sufficient reason to use an annuity in a tax-qualified plan. But income options, death benefit protection, investment selections and services, and flexibility are benefits an annuity can bring to any IRA.

Tax-Deferral

There are no tax consequences as long as you follow IRS guidelines. You won’t pay any taxes on gains from the annuity until you withdraw your money.

Growth Potential

You can earn additional interest based on the upward movement of an external market index in both bull and bear markets.

Protection From Stock Market Downturns

You will not lose money due to market downturns in a fixed annuity or fixed index annuity. If the markets have a down year, you earn zero interest. In exchange for this protection, you are limited on the upside you can get each year, unlike an individual stock through a mutual fund.

variable annuity will provide unlimited upside potential without protection from volatile market conditions. However, adding a Guaranteed Lifetime Withdrawal Benefit can protect the annuitant from running out of money due to a stock market crash.

Guaranteed Retirement Income For Life

You can choose to annuitize your annuity to receive annuity payments over a period of time or for life or add an optional income rider to generate a paycheck you can never outlive. Sometimes the insurance company will provide a paycheck that increases to help with inflation and the cost of living. In addition, annuities automate withdrawing from a 401k or IRA.

Flexibility

In addition to an income for life, waivers of surrender charges are often included to offer accessibility to your retirement plan in case of emergencies like entering a nursing home or terminal illness. In addition, there are no limits on annual contributions to an annuity.

Estate Planning

With most fixed-indexed annuities, your beneficiaries are guaranteed to receive your annuity’s Accumulation Value or Minimum Guaranteed Value, whichever is greater.

Contribution Match

Like a 401(k) match from your employer, some annuities can offer a premium bonus (up to 20%) on rollovers and additional deposits.

Can You Contribute To A IRA Rollover?

Yes, you can contribute to an IRA rollover. An IRA rollover is an individual retirement account (IRA) that allows you to move money from a 401(k) or another employer-sponsored retirement plan into a traditional IRA or Roth IRA. The rollover process allows you to continue saving for retirement without interrupting your contributions.

To contribute to an IRA rollover, you must open an IRA account and choose whether you want a traditional IRA or a Roth IRA. Then, you can initiate a rollover from your employer-sponsored plan to your IRA by contacting the plan administrator or financial institution that holds your account. They will provide you with the necessary paperwork and instructions for completing the rollover.

There are limits to the amount you can contribute to an IRA each year. For 2023, the contribution limit is $6,500 for those under age 50 and $7,500 for those aged 50 and older. If you are married and file a joint tax return, your spouse can also contribute to an IRA, even if they are not working.

It’s important to note that traditional IRAs and Roth IRAs have different tax treatments. Contributions to a traditional IRA may be tax-deductible, depending on your income and whether an employer-sponsored retirement plan covers you or your spouse. Withdrawals from a traditional IRA are taxed as ordinary income. Roth IRA contributions are not tax-deductible, but qualified withdrawals are tax-free. It’s a good idea to consult with a financial professional or tax advisor to determine which type of IRA is right for you based on your specific financial situation.

IRA Annuity Vs. 401k

Annuity401(k)
No Contribution Limits (non-rollover)Limited Contributions
Insurance or Investment ProductsInvestment Products
Guarantee on InvestmentNo Guarantee of Investment
Tax-Deferred or Tax-Free GrowthTax-Deferred Growth
Pass Down to BeneficiariesPass Down to Beneficiaries
Spousal ContinuanceSpousal Continuance
Market Volatility ProtectionCould Lose Money
Guaranteed lifetime IncomeCould Run Out of Money

Next Steps

The decision to roll over an IRA into a 401(k) can be confusing and complicated – there are pros and cons to doing so. However, if you’re interested in finding out more about rolling your IRA into a 401(k), we’ve got all the information that you need! We can help guide you through the process and make sure that you understand all of your options. Contact us today for a quote.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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