In addition to our “Comprehensive” and “Collaborative” service levels, we also offer some of our services in a “Do-It-Yourself” service level that has a lower annual fee and no minimum. Basic services include asset allocation design and portfolio management using accounts managed at Schwab. Some additional services are available for an additional charge.

Previously, I have written about how to Transfer an Existing Account to Schwab Institutional Intelligent Portfolios with Marotta Wealth Management, but sadly IRA Rollovers are a bit more complicated.

A transfer is moving assets from one account to another account with matching account registration. The movement of the assets alone is a neutral event.

Meanwhile, an IRA Rollover is moving assets from the employer sponsored plan (like a 401(k) plan) where it is governed by one set of IRS rules into an Individual Retirement Account (IRA) where it is governed by an entirely different set of IRS rules. Thus, the movement of the assets is not a neutral event. Furthermore, the amount you can rollover and where it should be rolled into is determined by the rules that govern your employer’s plan.

For these reasons, in order to perform an IRA Rollover, you need to perform the money movement through the paperwork of your employer plan’s custodian rather than Schwab. Here are the steps to do that:

1. Do a “Direct Rollover.”

At any time, you are generically allowed to move funds from one retirement account into another retirement account without the transfer counting as a distribution. This process is referred to generically as an IRA Rollover. There are many reasons you could be doing an IRA Rollover and there are different tax consequences or no tax consequences depending on the type of rollover you are performing.

The most common IRA Rollover is moving funds from an employer-sponsored retirement account, such as a 401(k), into a traditional IRA at a custodian of your choice.

Most employer-sponsored retirement accounts only allow this transfer to happen “out of service,” meaning after your termination or retirement date with the firm, but this varies by employer and by component of the plan. For example, many employer plans allow the Profit Sharing portion of the plan to be rolled out while “in service,” meaning while you are still employed. If you are older than 59 1/2, then the IRS rules that you can distribute or roll out your employer plan funds even if you are still “in service,” meaning you are still employed.

When performed correctly, simply moving the assets out of your employer plan and into the proper IRA is not a taxable event.

The easiest and cleanest way to accomplish an IRA Rollover is through what is called a trustee-to-trustee transfer or a direct rollover. A direct rollover is when the funds move directly from one account to the other without the owner ever having control of the funds.

The alternative to a trustee-to-trustee transfer is riddled with many rules and potential landmines. This alternative, simply referred to as a rollover contribution by the IRS, is where one account distributes a check for all of the assets it holds. Then, within the allowed time period of 60 days, you deposit that check into a different retirement account.

In general, you should avoid a rollover contribution and always opt for a trustee-to-trustee transfer or direct rollover.

2. Open the correct account type(s). (Are any assets Roth?)

The first step to a direct rollover is opening the receiving account.

If you are not yet a Marotta Do-It-Yourself client, you should follow the instructions here to open a Schwab account. If you are already a client, make sure you have an account that is qualified to receive the transfer. Otherwise, you should do the same to open the proper account.

There are two potential answers to which account type you need:

1. Rollover IRA: Moving retirement savings from your retirement plan at work, like a 401(k), into an Individual Retirement Account (IRA)
2. Roth IRA: When you open a Roth IRA, contributions and any earnings grow tax-free and qualified withdrawals can be taken tax-free.

Rollover IRAs are almost identical to Traditional IRAs. Both are pre-tax assets, meaning your deferred contributions were either excluded from your taxes, deducted on your taxes, or were part of a backdoor Roth.

Roth accounts, on the other hand, are post-tax assets. Additions receive no deduction, regardless of whether they were deferred into an employer plan from your salary or contributed to a Roth IRA. Roth assets are amazing and highly valuable.

Many employer sponsored plans offer an employer match (sometimes called an “Employer Safe Harbor Match”) and/or profit sharing (“Employer Profit Sharing”). These types of accounts are always traditional assets and should be moved to a Rollover IRA.

However, when it comes to employee deferrals, many employer plans offer both Roth and traditional deferral options. In fact, you may have some assets in each type of account, if you ever switched your funding options.

In my 401(k) plan, the two accounts are called “EMPLOYEE DEFERRALS” and “ROTH 401(k) ACCOUNT.”

Roth deferrals (the “Roth 401(k) Account” in my plan) should be rolled over into a Roth IRA. Traditional deferrals (the “Employee deferrals” in my plan) should be rolled over into a Rollover IRA.

It is important that you understand this distinction and know what each component of your employer plan is.

You are allowed to move your Traditional 401(k) assets into a Roth IRA, but the IRS will consider this a Roth conversion and tax you on it. Furthermore, as of 2018, this type of conversion cannot be undone.

You are allowed to move your Roth 401(k) assets into an IRA Rollover, but the IRS will consider this a nondeductible contribution and subject it to the “coffee and cream rules.”

As a result, confirm that you move pre-tax traditional assets into a Rollover IRA and move post-tax Roth assets into a Roth IRA. If you need assistance, don’t be afraid to ask for it.

3. Fill out the paperwork.

Once you have your accounts open, you should ask your Human Resources department for the IRA Rollover forms. Be very careful filling out these forms and be sure to ask for help if you need it.

Again, the most important details are:

1. That you do a DIRECT rollover,
2. That Roth assets are put into a Roth IRA, and
3. That Traditional assets are put into a Rollover IRA.

After your paperwork is submitted to your employer plan’s custodian, then you can wait for the transfer to happen.

4. Get help if you need it.

If you still need help with the rollover, you have a few options for where to get help.

1. You can get your Human Resources department to help you find and fill out their paperwork.
2. You can call Schwab Retirement Services at 800-694-9449 or the Schwab Alliance team at 800-515-2157 to get information about the rollover process or how to fill out Schwab’s information on the paperwork.
3. You can get our help with the transfer via our Paperwork Preparation bonus service.

Because employer retirement plans often have high operating costs which are burdened on the employee accounts and sometimes only have fund options with high expense ratios, IRA Rollovers often save investors money. If you are wondering whether your 401(k) plan is a good deal, you can send us your employer plan documents for a review as a part of our Retirement Plan Management service.

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