Importance of IRA Rollovers for LGBT Couples

One of the primary mechanisms for growing your retirement portfolios is a 401k. A 401k is a tax deferred investment mechanism offered through employers, meaning you will not pay taxes on the contributions until you withdraw them. The typical 401k allows you to invest in a limited variety of stocks, bonds, mutual funds that employees may choose from, with some employers matching their employee contribution. However, when one leaves one job for another, they often forget about the 401k they started at their previous employer. That is why it is important to move your 401k with you to your next job, commonly referred to as converting or “rolling over”. And when rolling over your 401k, it is preferable to convert it into an IRA.

Why Rollover? Why an IRA?
The primary reason to rollover your 401k is the ability to coordinate your investments, and provide the simplicity and convenience of having fewer accounts. It is always easier to manage all your accounts in one place, rather than track multiple 401k’s from various points in one’s career. A 401k is usually rolled over into an Individual Retirement Account, or an IRA. An Individual Retirement Account has the advantage of allowing you greater financial flexibility, while 401k’s often have restrictions on the types of investments you can make. A 401k can also point you towards investing in your own companies stocks, while an IRA gives you full control over your retirement portfolio, with greater choices to boot. Finally, IRA’s have the same tax deferred benefits of a 401k.

LGBT Professionals and Rolling Over Your Account
Many LGBT professionals have 401k’s or old IRA’s that they have not rolled over from previous jobs. This is very important to do in a timely manner, so that you are able to more easily track your many investments. It is also recommended that you use a professional to roll over your into an IRA. You are only allowed one IRA rollover in a calendar year, and a rollover must be done within 60 days from the date that you receive the distribution from closed out accounts. If you do not rollover your IRA correctly within 60 days, you could be forced to pay taxes immediately on what should be a tax-deferred account!

Additionally, LGBT professionals have to be particularly careful when it comes to their beneficiaries. Because of the varying marital status of LGBT couples across states, it is important to work with a professional to setup your IRA beneficiaries correctly. For married LGBT couples, a widow is now allowed to rollover their spouse’s IRA into their own IRA, which is a huge advantage that only recently came to fruition with the overturning of DOMA.

Tags: LGBT Financial Planning, LGBT IRA Rollovers, IRA Rollover