Ask the Experts: Should You Consider a Reverse Rollover from Your IRA to Your New 401(k) Plan?

You've landed a new job with an impressive 401(k) plan, and now you're wondering if it makes sense to roll over your existing Individual Retirement Account (IRA) into this new plan. A reverse rollover, as it's known, can be a strategic move, but it's essential to understand the potential benefits and drawbacks before making a decision. Let's explore the advantages and disadvantages of a reverse rollover and consult with financial experts to help you make an informed choice.

Advantages of a Reverse Rollover

1. Delayed Required Minimum Distributions (RMDs): If you're still working and your new employer's 401(k) plan allows it, you can delay RMDs until you retire. This can help keep your income in retirement lower, potentially pushing you into a lower tax bracket.
2. Potential for lower fees and better investment options: Your new 401(k) plan might offer institutional investment options with lower expense ratios than those available in your IRA, allowing your money to grow more efficiently.
3. Easier access to loan options: Some 401(k) plans allow loans, which can be useful in case you need to access your retirement funds for emergencies or other purposes. IRAs do not allow loans.
4. Simplified account management: Consolidating your retirement savings into a single account can make it easier to manage and track your investments.

Disadvantages of a Reverse Rollover

1. Limited investment options: While 401(k) plans may offer some advantages, they typically have fewer investment options compared to IRAs. This can limit your ability to diversify your portfolio or access specific investments you prefer.
2. Potential loss of control over investments: When rolling over funds from an IRA to a 401(k) plan, you may lose some control over your investments, as the 401(k) plan's investment options and rules may be more restrictive.
3. Potential loss of Roth IRA benefits: If you have a Roth IRA, you may lose the benefits of tax-free withdrawals and growth by rolling over funds to a traditional 401(k) plan. However, if your new 401(k) plan offers a Roth option, you can still contribute to a Roth account within the plan.



Expert Insights

Sham Ganglani, Fidelity Investments' director of retirement product management, emphasizes the importance of making a decision about where you would like your money to go. "You're in the driver's seat," he says. "It's important to make a decision about where you would like your money to go."

Joe Conroy, a certified financial planner and owner of Harford Retirement Planners, suggests considering a reverse rollover if you want to delay RMDs or perform a backdoor Roth IRA conversion. However, he warns that not all employer-sponsored plans accept reverse rollovers, so it's crucial to check with your plan administrator.

Nick Rygiel, a certified financial planner and owner of Ironclad Financial, highlights the potential benefits of a reverse rollover, such as stronger creditor protection and easier access to penalty-free withdrawals. However, he also emphasizes the importance of understanding the specific rules and requirements of your new 401(k) plan.

Conclusion

A reverse rollover from your IRA to your new 401(k) plan can offer several potential benefits, such as delayed RMDs, lower fees, and easier access to loans. However, it's essential to weigh the advantages and disadvantages and consider your personal financial situation and goals. Consulting with a financial advisor can help you make an informed decision and ensure that you're taking full advantage of your new employer's 401(k) plan.