What are the advantages of a rollover IRA?
Tax deferral is probably the biggest advantage. When you receive an eligible rollover distribution from your employer’s qualified retirement plan, you have a choice. You can either pay tax immediately on the distribution, or you can defer paying tax by rolling the distribution over into an IRA (or another eligible rollover plan). If you choose the IRA rollover, you can postpone paying tax until distributions begin. And you don’t have to start receiving payments from your IRA until April 1 of the year after you reach age 70½. In addition, when you use the IRA rollover, the income generated by investing your eligible rollover distribution will also continue to grow on a tax-deferred basis. So, for example, if you have a $250,000 distribution that grows at an annual rate of 6%, you can accumulate an additional $84,566 over a five-year period.
