Rollover vs Traditional IRA

[Wompus9]

Hi,

Can someone explain the difference between a Traditional IRA and a Rollover IRA?

I’m considering taking advantage of Wells Fargo’s recent $2,500 promotion for transferring assets from Schwab to Wells Fargo. I currently have a Rollover IRA at Schwab.

When I spoke to WellsTrade, the representative said they don’t specifically have Rollover IRAs—just Traditional IRAs. They mentioned it’s fine to move my funds from Schwab’s Rollover IRA to their Traditional IRA. For context, my Schwab Rollover IRA came from rolling over funds from my old employer’s 401(k).

Is there any risk involved in transferring a Rollover IRA into a Traditional IRA with WellsTrade? Could it cause any complications down the line, particularly when it comes to distributions?

I’d really appreciate any advice or insight. Thanks!

 

[Gruffle88]

The "Rollover" label on an IRA is simply used to indicate that the funds came from a 401(k) or similar retirement plan.

The main difference is that some 401(k) plans allow you to roll over money into their plan, but that money must come from a previous 401(k). It can be either transferred directly from the 401(k) or through a Rollover IRA that only contains funds from a previous 401(k), not combined with other IRA funds.

So, if you’re rolling over a 401(k), just move that money into an IRA without mixing it with other IRA funds. This way, you keep your options open for the future.

 

[Wompus9]

The "Rollover" label on an IRA is simply used to indicate that the funds came from a 401(k) or similar retirement plan.

The main difference is that some 401(k) plans allow you to roll over money into their plan, but that money must come from a previous 401(k). It can be either transferred directly from the 401(k) or through a Rollover IRA that only contains funds from a previous 401(k), not combined with other IRA funds.

So, if you’re rolling over a 401(k), just move that money into an IRA without mixing it with other IRA funds. This way, you keep your options open for the future.

Thanks!

Since Wells Fargo doesn’t offer rollover IRAs, I guess I’ll pass on the bonus. It seems like other brokerages offer the "Rollover" IRA option.

 

[Gruffle88]

Thanks!

Since Wells Fargo doesn’t offer rollover IRAs, I guess I’ll pass on the bonus. It seems like other brokerages offer the "Rollover" IRA option.

I think you might be under the impression that the brokerage assigns the "rollover" label to the account, but that’s not how it works. It’s up to you to keep the money separate, and all I did was name my account "Rollover IRA." I never rolled it back into another 401(k), so in the end, it didn’t really matter.

Just a side note—consider looking into Fidelity, Schwab, or Vanguard. They tend to be better options for long-term investing compared to Wells Fargo as a brokerage.

 

[Wompus9]

I think you might be under the impression that the brokerage assigns the "rollover" label to the account, but that’s not how it works. It’s up to you to keep the money separate, and all I did was name my account "Rollover IRA." I never rolled it back into another 401(k), so in the end, it didn’t really matter.

Just a side note—consider looking into Fidelity, Schwab, or Vanguard. They tend to be better options for long-term investing compared to Wells Fargo as a brokerage.

Thanks for clearing that up!

It looks like I can set up a Traditional IRA at Wells Fargo and transfer my Rollover IRA funds there, making sure to name the account properly in case I want to move it into a 401(k) later. From what I understand, I can only take money out of an IRA penalty-free after 59½, but with a 401(k), I can withdraw at 55 if I leave the job, which is something to consider since I plan to retire before 59 due to my health and the stressful nature of my current job.

Thanks again for your help, Gruffle88. I’ll also check out other brokerages.

 

[Drankle87]

In some states, a rollover maintains the ERISA legal protections.

 

[PickleTrap]

Hi,

Can someone explain the difference between a Traditional IRA and a Rollover IRA?

Wompus9,

Take a look at this IRA rollover chart:

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

Here are the IRS rules for rollovers:

Rollovers of retirement plan and IRA distributions | Internal Revenue Service

Find out how and when to roll over your retirement plan or IRA to another retirement plan or IRA. Review a chart of allowable rollover transactions.

www.irs.gov

Also, keep in mind the Pro Rata rule when it comes to after-tax funds in a pretax account:

Rollovers of after-tax contributions in retirement plans | Internal Revenue Service

Single Distribution Rule for Retirement Plans

www.irs.gov

 

[Thunkus1]

In some states, a rollover maintains the ERISA legal protections.

Drankle87, do you know which states offer ERISA protection for rollover IRAs? Are these protections maintained in all states, or just some? Thanks for your help!

 

[PickleTrap]

Drankle87, do you know which states offer ERISA protection for rollover IRAs? Are these protections maintained in all states, or just some? Thanks for your help!

Here's the link for reference: https://www.assetprotectionplanners.com/planning/ira-by-state/ — Google is still a helpful tool!

 

[Wompus9]

Wompus9,

Take a look at this IRA rollover chart:

https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

Here are the IRS rules for rollovers:

Rollovers of retirement plan and IRA distributions | Internal Revenue Service

Find out how and when to roll over your retirement plan or IRA to another retirement plan or IRA. Review a chart of allowable rollover transactions.

www.irs.gov

Also, keep in mind the Pro Rata rule when it comes to after-tax funds in a pretax account:

Rollovers of after-tax contributions in retirement plans | Internal Revenue Service

Single Distribution Rule for Retirement Plans

www.irs.gov

Thank you, this is really helpful.

1. It seems like the IRA doesn't distinguish between a Rollover IRA and a Traditional IRA, as long as I avoid mixing after-tax funds with the Rollover IRA.
2. It also looks like trustee-to-trustee rollovers are not affected by the 1-year rollover rule.

 

[PickleTrap]

Thank you, this is really helpful.

1. It seems like the IRA doesn't distinguish between a Rollover IRA and a Traditional IRA, as long as I avoid mixing after-tax funds with the Rollover IRA.
2. It also looks like trustee-to-trustee rollovers are not affected by the 1-year rollover rule.

Yes, it really depends on your end goal or purpose.

Rollovers allow you to transfer funds to other custodians and offer portability.

Traditional IRAs are pre-tax accounts and require earned income to contribute. If you have children or deductions, this might be more beneficial than a Roth IRA, especially if your income exceeds the Roth contribution limits (you could consider a Backdoor Roth).

After-tax contributions to a Traditional IRA can be used for a Backdoor Roth conversion.

For more details, you can check out this https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/

Here’s another one on using the https://www.whitecoatinvestor.com/the-mega-backdoor-roth-ira/

 

[Drankle87]

Drankle87, do you know which states offer ERISA protection for rollover IRAs? Are these protections maintained in all states, or just some? Thanks for your help!

It's a bit more complex than I initially mentioned. In most states, creditor protection applies either way, but in some states - California, for example - you need to prove that the funds come from a qualified employer plan to get that protection.