How to Roll Over an IRA Into a Retirement Account

Not only were you, uh, downsized, but you had to take your 401(k) with you. Rolling it into an Individual Retirement Account saved you from a tax bite, but now you're stuck with an account you don't want to manage. There are good reasons – besides convenience – to move money from an IRA into your workplace retirement account. You can only move tax-deductible contributions and earnings, so make sure you do the maneuver correctly.

Reasons to Roll

Generally, you can get lower fees and more investment options outside your employer's retirement plan. However, there are four primary reasons to transfer in your money. Some states don't protect IRA accounts from creditors and damage judgments; federal law gives such protection to workplace plans. Reducing your pretax IRA balance allows you to convert your remaining IRA assets to a Roth IRA more tax-effectively. Increasing your 401(k) account provides you with a larger loan potential if your company's plan allows it. Finally, you can withdraw your money without a tax penalty from a 401(k) by retiring at age 55; you must wait until 59 1/2 for penalty-free IRA distributions.

Getting Started

The Internal Revenue Service allows you to move an IRA into a 401(k), but accepting an incoming IRA transfer depends on the plan. Make sure your company's plan allows it. If your plan doesn't accept IRA transfers now, ask for the plan to be amended.

Rolling Over a Rollover

Some plans will only accept a rollover IRA – assets that you moved from a previous employer's plan to an IRA account, perhaps while you were between jobs. If you kept those rollover assets in a separate account, you may be able to do a direct rollover. You may even be able to move your same investments into your current workplace plan, depending on its flexibility. Your company's plan administrator can give you the instructions you'll need for your IRA custodian.

Blended IRA

Employer-sponsored retirement plans can accept only pretax assets in a transfer. Although the IRS allows you to separate out pretax amounts for your rollover, it's doubtful your plan will accept a transfer from an account with commingled pretax and after-tax funds. That creates the risk the company plan could be disqualified if after-tax money were discovered in the transfer.

Indirect Rollover

In most cases – certainly if you're transferring funds from a traditional IRA, particularly one with blended assets – your rollover will be a two-step process. First, you must request a check from your IRA custodian for the amount you want to transfer. To avoid paying taxes, plus a penalty on the amount as an early IRA withdrawal, you must deposit the money into your account in the company's plan within 60 days. You can avoid withholding on the transfer check by having it made out to "name of the company plan FBO 'your name.'" FBO means "For Benefit Of."

Prohibited Rollovers

You can't roll over funds from a Roth IRA; it's all after-tax money. The IRS also prohibits you from transferring an inherited IRA into your workplace retirement plan.

About the Author

Dale Bye has spent more than 40 years in journalism, including 25 supervising reporters and editors at metropolitan newspapers and eight years as senior managing editor at a national sports magazine. He directed five newspaper-sponsored personal finance fairs. His fields of expertise include business and personal finance, sports, fitness and theater. Bye holds a Bachelor of Journalism from the University of Missouri.