If you have ever left an employer where you had a retirement savings account, you may have “rolled” those funds into a personal IRA. Doing so can allow you to take control over your money, as well as open up a much wider array of investment opportunities.

But what about doing the opposite?

Many investors don’t realize that there is a technique called a “reverse rollover” that can offer convenience in your overall financial planning – especially if you currently have multiple retirement savings accounts.

But even so, it is critical that you understand how this process works, and that you are aware of both the benefits and the drawbacks.

What is a Reverse Rollover?

A reverse rollover occurs when you transfer retirement assets from an IRA (Individual Retirement Account) that you manage on your own to your current employer’s 401(k) plan. Although this is not a common practice, it can make managing your retirement money easier and more convenient for investors.

While reverse rollovers aren’t suitable for everyone, there may be some instances when this strategy could be considered, such as if you:

  • Prefer convenience over control of your retirement assets.
  • Want to delay required minimum distributions (in certain cases).
  • Want the option to borrow money from your retirement funds without triggering certain penalties and taxes.
  • Wish to access money before age 59 ½, but don’t want to incur an early withdrawal penalty.
  • Want protection from lawsuits, creditors, and bankruptcy.

Reverse rollovers can make managing your money more convenient because the bulk of what you have can all be in just one place. This can also allow you to purchase larger positions (i.e., place more money into each individual investment).

If you are still working when you reach age 72, you can delay taking required minimum distributions from your 401(k). This is not so with funds that you hold in a personal, traditional IRA account.

You also have the opportunity to borrow money from your 401(k) plan without having to pay the taxes and penalties that could be associated with taking withdrawals from a personal Individual Retirement Account.

If you opt to retire at age 55, you could forgo the 10% early withdrawal penalty you would incur by taking withdrawals from an IRA account prior to age 59 ½. In this case, however, you will have to meet other qualifications.

Moving money into your current employer’s 401(k) plan can also help you to shield these funds from creditors, as well as from lawsuits and even potential bankruptcy. This is because federal law protects 401(k) plan assets in the event of these types of legal issues.

Items to Consider Before Moving Any Funds

Even given the many benefits of reverse rollovers, there are some potential drawbacks to consider, such as:

  • Employer-sponsored 401(k) plans typically have limited choices in terms of investment vehicles. So, you may not be able to diversify as well as you would like.
  • 401(k) and other employer retirement plans can also have high fees. This, in turn, can end up reducing your overall return.
  • You can also have much more control over personal IRA funds than those in an employer-sponsored retirement plan. For instance, you can invest the money the way you want to. This can lead to greater diversification.

It is also important to note that you can only conduct reverse rollovers with traditional IRA funds. So, if you have a Roth IRA account, this money will not qualify.

Should You Consider a Reverse Rollover as Part of Your Retirement Planning?

Because everyone’s objectives, risk tolerance, and time frame until retirement are different, it is important that you have a plan that is as unique as you are. Talking with a retirement income specialist is a great place to start.

At Annuity Gator, our primary mission is on educating consumers and financial professionals on retirement income strategies. So, if you would like to see what is available to you, feel free to contact us by phone at (888) 440-2468 or via email by going to our secure online contact form. We look forward to answering any questions that you may have.

How to Roll Over an IRA to a 401(k). By Patrick Villanova. September 9, 2022. SmartAsset.

Why Consider a Reverse Rollover?