ASK KIM
How to Handle an IRA Rollover
by Kimberly Lankford

Can I roll my 401(k) from a former employer into an existing traditional IRA, or do I have to open a new IRA?

You can choose either option.

At one time it was better to open a "conduit" IRA to preserve your right to transfer the money later to a new employer's 401(k) plan. That is, you weren't allowed to mix the 401(k) money with existing IRA money. But Congress has nixed that restriction. Now when you leave a job, you can move pretax money you contributed to a retirement plan to any other tax-favored plan. For more on the rules, see Smoothing the Road for Retiree Rollovers.

If, however, you think you might want to move the money to a new employer's 401(k), a separate account would make the rollover money easier to keep track of.

Whether you put the funds into an existing IRA or a new account, be sure to ask your employer to transfer the 401(k) balance directly to the IRA. If you take a payout with the intention of doing the rollover yourself, your employer will withhold 20% of the balance for the IRS.

For ideas about where to invest the IRA money, see our model fund portfolios for different timeframes.