Generally speaking, rollovers are a financial tool that can be used for consolidating your money from preexisting Simple IRA plans into a new Simple IRA rollover or other investment vehicle. There are a number of good reasons to rollover your money; however, you will want to be aware of a few guidelines that will allow you to maintain the tax deferred status of your money, while doing what’s best for your investments in both the short and long term.
For starters, the most common reason to perform a Simple IRA rollover is access to a new Simple IRA account or account provider. A Simple IRA account is usually offered as part of a benefits package that comes with a new job. Alternatively, you may be eligible to establish a personal Simple IRA or other IRA account. Although you aren’t obligated to move funds out of any old Simple IRA plans you still hold, you may find that this financial move makes sense.
For example, look at the performance of your existing Simple IRA plan. Has the management changed? Has there been a decline in performance? Maybe your old Simple IRA account offered limited access to particular investment opportunities that would be well suited to your retirement goals (privately held IRAs typically offer a much greater selection of investment options). Any one of these reasons – or a combination of them – might signal a need to perform a Simple IRA rollover
You’ll also want to consider any recent changes in your life. Do you have new needs, such as increased property taxes? Your age can also be a good reason to perform a Simple IRA rollover. Investment decisions that made sense for you as a young investor may change as you get closer and closer to retirement and to the goal of cashing out the plan. As a rule, investment portfolios should bear less risk the closer the account holder is to retirement. If you’re approaching retirement and your old Simple IRA accounts don’t offer good access to stable investment options, you may want to consider a new provider.
Another consideration to make is the ease of managing your retirement funds across multiple providers. Retirement accounts – like any other investment accounts – need to be rebalanced over time. To understand why, consider a portfolio that’s invested in 50% risky tech stocks and 50% stable bond funds. If the tech stocks go up in value, the balance of the portfolio may be off, causing the account holder to be exposed to more risk than he or she initially intended. Rebalancing helps to adjust for these disparities, but it can take time to accomplish if you hold multiple accounts. For this reason, a Simple IRA rollover may make sense.
Finally, when it comes time to move your money, be sure to request a direct rollover from both the old and new account providers. This type of transaction will maintain the tax deferred status that you want. If the money does come into your hands via an indirect transfer, there’s a good chance that you’ll be exposed to taxes and penalties that can be avoided by simply requesting a “direct rollover.” Carrying out the Simple IRA rollover in this way will ensure that your retirement savings remain undisturbed, increasing in value until you need them later in life.