retirement

9 common misconceptions about IRAs

Retirement » 9 common misconceptions about IRAs

A rollover is the best idea
A rollover is the best idea © dotshock/Shutterstock.com

A rollover is the best idea

Moving money from a former employer's retirement plan to a rollover IRA is often a good idea, but not always. In fact, it can sometimes be against your best interest to do so. But you may not get that message if you go to a big fund company and ask for help.

There are reasons to choose other options. For instance, if you have lots of company stock in your 401(k), you may want to think twice about doing a rollover -- particularly if the stock has increased in value.

"There's a huge tax break: net unrealized appreciation. Even advisers don't know that much about it. If you do the rollover, it's off the table -- it's irrevocable. You can't get the benefit," says Slott.

"Without getting too into it, the benefit says, if, instead of doing a rollover, you take a lump-sum distribution, the appreciation can come out tax-free as opposed to taxable in an IRA. Plus, when you sell the stock, you get the capital gains tax rate, which in some cases can be half the tax rate for funds coming out of an IRA," he says.

Note that the company stock has to be transferred out of the account in-kind, meaning as the stock, not as cash.

Bottom line: Investigate all your options before doing something that can't be changed.

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