NerdWallet's Smart Money Podcast
Retirement Rollover Ready? Rules, Risks, and Rewards of 401k and IRA Transfers
04 Nov 2024
Chapter 1: What budgeting mistakes should you avoid during the holidays?
Who hit fast forward on 2024? Like, how are we in November already? Sarah, am I alone in feeling like this year was on turbo speed?
You're not. I still think 1975 was 20 years ago.
I like the end of the year for two reasons. Now, one, I'm a self-reflective journaling chick, and I enjoy doing my year in review exercises. And for two, I'm a December baby. Shout out to all my Sagittariuses. But anyway, we're going to be delving more into the former today. Welcome to NerdWallet's Smart Money Podcast. I'm Elizabeth Ayola. And I'm Sarah Rathner.
And for the record, I do not journal. We got to talk about that more later. I know. All right. This episode, we answer a listener's question about combining retirement accounts from different jobs. But first, Sarah and I are going to talk about the worst budgeting or financial mistake that we have made this year.
Now, if we want to add a splash of festivity to the topic, we can focus on holiday spending mistakes. It's your call, Sarah. And yes, that means you're going first.
Yeah, no pressure. Well, we could apply this to holiday spending, but we could also apply it to spending year round. And for me, it's just so easy, like way too easy to try to solve problems by buying stuff online. And I can't count the number of times I thought I had the problem to solve. And I threw money at some small thing. And I thought it would be the solution to my problem.
And then the package arrived a few days later. And I'm like, why did I buy this? It's like this death by 1000 Amazon purchases.
I'm certain that so many people feel seen right now, Sarah, because you shared that. And you know what? I hate to say that I can relate, but I must say that I'm proud of a new habit that I've developed. So I have started returning things to Amazon that I do not need. Yes, before I was too lazy to return them, so they would just sit around my house.
Now, I think the option to drop items at Whole Foods, shout out to Amazon for that, has been a source of motivation. Nothing beats saving money by returning things I don't need and picking up a few healthy food items in the process.
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Chapter 2: How can you simplify retirement account rollovers?
then I need to come up with an additional $2,000 so I can deposit that original balance of $10,000 to the new retirement account. And if I don't do that, if I can't find that $2,000, I will face penalties from the IRS, which is not ideal. And we should say that you will get that withheld money back from the IRS, but not in time to replace it within the 60-day period.
So that sucks. No, I mean, there's no other way I could say that. That's really rough. And you're taking something that is already really administratively complicated and then making it expensive, which is no fun. Jay, that being said, let's get to your story. What was your rollover adventure like?
The year is 2022. I had just been hired by NerdWallet, and I decided that it was time to get all of my retirement accounts from my former employers into one. I had two old ones from, like I said, two previous employers, and I wanted to move them into one financial institution, the one that was already holding my husband's and my Roth IRAs.
I used a service which facilitates the rollover process for free. And even though I didn't need this particular feature, it also helps you find old 401ks that you may have forgotten about.
That's handy. So you were doing an indirect rollover, but you had a company helping you out as sort of an intermediary.
Right.
Okay. And you did two rollovers. So walk us through the first one.
The first rollover, I would say, was a little bit more straightforward. I moved about $21,000 from a Roth 401k from a former employer into that Roth IRA that I said I had already had at that particular financial institution. I was able to roll that $21,000 in my old Roth 401k into my current Roth IRA because both investment accounts are after tax.
And that just means I had already paid tax on the contributions. And the big benefit of that is I get to make withdrawals and retirement tax free. Now, when you do rollovers, it is possible to roll over a traditional 401k into a Roth IRA, but you will have to pay taxes. Accounts have to be tax compatible if you want to avoid paying penalties.
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