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How to Roll Over an IRA to a 401(k)


Rolling over your 401(k) to an individual retirement account is common practice when starting a new job. But what about doing the opposite: moving IRA assets into a 401(k) plan? While not nearly as common, these “reverse rollovers” do exist and may be an option if you’re an investor looking to merge multiple retirement accounts. When considering a rollover of any variety, it may help to work with a financial advisor who can guide you on your path to retirement.

Reasons to Roll Your IRA Into Your 401(k)

A reverse rollover occurs when you transfer retirement assets from an IRA that you manage to your current employer’s 401(k) plan. Moving money out of an IRA and into a 401(k) does offer a number of potential benefits.

You Prefer Convenience Over Control

Perhaps you opened an IRA with the intention of putting together a diverse portfolio and actively managing your investments. However, you’re now finding that you don’t have the time or energy to devote to your portfolio and feel that you’re in over your head. Rolling over your IRA to a 401(k) and giving up some control may better fit your needs as an investor.

Delay Required Mandatory Distributions

Workers with traditional IRAs and 401(k)s both face the same reality when it comes to taking mandatory distributions. The IRS requires that you begin taking distributions by April 1 of the year following your 73rd birthday. However, you may delay taking RMDs from your 401(k) if you’re still working and own less than 5% of the company that sponsors the plan.

401(k) Loan Options

Another benefit of rolling over IRA assets to a 401(k) is the potential ability to borrow money from your retirement savings without triggering the taxes and penalties associated with an early withdrawal. However, you’ll have to repay the loan with interest or the outstanding balance will be an early distribution, with taxes then applying.

Access Money Earlier

Money in an IRA usually cannot be withdrawn before age 59.5 without triggering the government’s 10% early distribution penalty. Assets in a 401(k) may be eligible for withdrawal at age 55 under what’s known as the Rule of 55.

Stout Legal Protection

Moving money into your current employer’s 401(k) will also shield your retirement savings from creditors, lawsuits and potential bankruptcy. Federal law protects assets in 401(k) accounts in the event of legal troubles.

Save Money During a Roth Conversion

This is where things can get tricky. If you plan to convert your traditional IRA into a Roth IRA to take advantage of tax-free growth, you can avoid immediate tax consequences by first rolling over any pre-tax contributions over to your 401(k). You’ll want to consult a tax professional when converting a traditional IRA to a Roth option.

Reasons Not to Roll Your IRA Into Your 401(k)

A man reviewing the benefits and drawbacks of rolling over an IRA to a 401(k).

To be clear, the IRA to 401(k) rollover isn’t a panacea. There are specific drawbacks and limitations of moving your retirement savings to your 401(k) plan, which may deter some investors from going this route.

You’ll Lose Control and Flexibility

The most significant benefit of an IRA is the power and flexibility to invest your money how you want. By rolling over your IRA, you’ll be forfeiting a lot of that control and freedom. Your 401(k) plan likely offers a limited number of mutual funds and exchange-traded funds, so you may feel restricted by those offerings if you value greater diversification and oversight.

You Have a Roth IRA

Roth IRAs are popular and power investment tools, because contributions are taxed before they enter the account. As a result, your earnings grow tax-free and won’t see taxes when you withdraw. The problem? Roth IRAs can’t be rolled over into 401(k) plans.

How to Complete an IRA to 401(k) Rollover

A senior couple reviewing requirements to complete a rollover from an IRA to a 401(k).

The first step is checking whether your employer’s 401(k) plan accepts IRA rollovers. Not all plans will allow you to roll over IRA assets. If they do, you’ll want to request a direct transfer to avoid any income tax or the 10% early withdrawal penalty.

If a direct transfer isn’t an option, your IRA provider will send you a check for 80% of your account’s value and withhold the remaining 20% for taxes. You must deposit 100% of the value of your IRA into your 401(k) within 60 days or the transaction will become an early distribution, triggering the 10% penalty and income taxes. The 20% that your IRA provider withheld will serve as a tax credit when you file your tax return.

Bottom Line

Like a regular 401(k) rollover, a reverse rollover has its pros and cons. By moving money from an IRA to a 401(k) you’ll benefit from stronger legal protections. You’ll also potentially delay your RMDs and also have access to your money at age 55 in some instances. But rolling over an IRA to a 401(k) comes with some drawbacks, namely the ability to invest your money how and when you want. An investor who values convenience over control may like this option, and request a direct transfer to avoid any taxes or penalty.

Saving Tips for Retirement

  • A financial advisor can help manage all of your retirement accounts for your specific needs and goals. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now
  • Remember that Social Security payments are an important part of your retirement plan. Use SmartAsset’s Social Security calculator to see what your payments might look like.

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