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The following is an excerpt from a document my broker sent me, I can't figure out the difference between these 2 options:

The heading is:
What's the Advantage of a Rollover IRA

1) No matter how your distribution end up in a Rollover IRA, it will be eligible to be rolled into a qualified plan-your next employer's 40(k) plan, for example - as long as you don't make contributions to the Rollover account.
// my interpretation - you can roll into the next plan as long as you don't add to it//

2) In contrast, if your distribution is deposited into a non-rollover IRA, you lose the ability to roll over the funds into another qualifid plan if you make contributions to the account. You will still be able to make annual contributions to this account.
//my interpretation - you can't roll it into the next plan if you add to it//

So, I'm guessing: ADDING TO A ROLLOVER, TURNS IT INTO A STANDARD? and A STANDARD is a ROLLOVER until you add to it??

What am I missing here? Is there really no such thing as a 'rollover IRA' is it just a term used to describe a traditional IRA that was funded by a rollover that is still eligeable to be rolled into a new employers plan? Any insight would be helpful.

As you could probably guess, I've got a 401(k) from an old employer. They say that I'll get the entire balance when I turn 65 if I don't roll it out into another employers' plan(or into an IRA).

Thanks!
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<The heading is:
What's the Advantage of a Rollover IRA

1) No matter how your distribution end up in a Rollover IRA, it will be eligible to be rolled into a qualified plan-your next employer's 40(k) plan, for example - as long as you don't make contributions to the Rollover account.
// my interpretation - you can roll into the next plan as long as you don't add to it//

2) In contrast, if your distribution is deposited into a non-rollover IRA, you lose the ability to roll over the funds into another qualifid plan if you make contributions to the account. You will still be able to make annual contributions to this account.
//my interpretation - you can't roll it into the next plan if you add to it//Your broker is missing a couple of things.

First alternative above: if your distribution didn't originate from a 401(k), you can't roll it into a subsequent employer's qualified (401(k)) Plan at all, whether you make subsequent contributions to it, or not. I _think_ (Pixy will know) you can mix proceeds from multiple 401(k)s without losing your ability later to roll the pile into a subsequent employer's qualified Plan. I'm not sure of the rules for 403(b)s, except I think they have the same purity requirements.

Second alternative above: if your distribution is deposited into a non-rollover IRA (e.g., one to which you have other IRA monies already, or, as you suggested, what a rollover IRA becomes if you make subsequent contributions), you can't re-roll the money into a subsequent employer's qualified Plan, because you've lost the purity of the original rollover. Again, whether you make subsequent deposits or not.

Hope this helps.

Eric Hines
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I think the basic issue is not to commingle rollover money with either new IRA contributions or an existing IRA account's money. Either way you lose the ability to plunk your money back into your new employer's 401K.

IMHO, the bigger (& unspoken) issue is why would you want to roll *your* money into your new employer's 401K in the first place? You would go from a self-directed IRA with complete control over where & how your $ is invested (FF, RP, UG, RS, etc, etc) into a situation (401K) where an index mutual fund may be your best option among an anemic group of mutual funds. Not too Foolish! It's your money! Keep it under *your* control!

Chris
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<<why would you want to roll *your* money into your new employer's 401K in the first place?>>

Chris is certainly correct in pointing out that employer plans often provide an inferior selection of investment choices. But that's not true of all such plans. And there are a couple of advantages you can get in an employer plan but not in an IRA. One is stronger protection from creditors. Protection for IRAs depends on state law and is often relatively weak, whereas employer plans are protected by federal law (ERISA). Another is the ability to borrow from your account (available in many but not all employer plans but never permitted for an IRA). These issues are discussed in:

Roth IRA vs. Employer Plan
http://www.fairmark.com/rothira/rothvemp.htm

Kaye Thomas, author
Tax Guide for Investors
http://www.fairmark.com
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Thanks for the responses!

Regarding rolling it into a new plan, I didn't have any plans of doing so - I like the idea of having control. I just wanted to keep my options open, and to decipher what looked like two identical statements, one of which was preceeded by 'conversely', when they didn't seem to be 'converse' at all :)

Kaye, your post is exactly why I wanted to maintain flexibility if possible, since I had no idea about the extra protections you mentioned, my desire to keep it flexible was born of the knowledge that I don't know a whole heck of a lot about the ins and outs of all of these different plans.

I'll roll it over into a self directed (traditional)IRA for now(a rollover one), and if I decide its prudent, I'll open another IRA this year(most likely a Roth, since I can't deduct a standard one anyway). It may be in my best interest to keep more money out of tax-advantaged plans though, I'm growing that quite nicely(maxxed 10k into new 401K) and I'm only 25, so with my current plans, I should be able to retire early. I still have to do the math to figure out how much should be accessible before 65.

Anyone know any good resources for Early Retirement information:
1. how much to tax advantage vs. not.
2. medical insurance costs
3. other budgetary concerns for an early retiree?
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Greetings, Helter, and welcome.

<<1) No matter how your distribution end up in a Rollover IRA, it will be eligible to be rolled into a qualified plan-your next employer's 40(k) plan, for example - as long as you don't make contributions to the Rollover account.
// my interpretation - you can roll into the next plan as long as you don't add to it// >>

That's correct. As long as the rollover (or "conduit") IRA receives no other monies except those transferred from qualified retirement plans, then the original rollover(s) and all earnings remain eligible for a later transfer to a new employer's qualified retirement plan. The new plan, though, does not have to accept the old money. Such acceptance is an option the plan may or may not adopt within its documents. If you transfer or rollover another IRA that is not exclusively composed of qualified plan monies and earnings (i.e., a "regular" IRA) or make contributions to the "conduit" IRA, then the conduit IRA is considered "tainted" and loses its eligibility for later transfer to a new employer's plan.

<<2) In contrast, if your distribution is deposited into a non-rollover IRA, you lose the ability to roll over the funds into another qualifid plan if you make contributions to the account. You will still be able to make annual contributions to this account.
//my interpretation - you can't roll it into the next plan if you add to it// >>

Essentially correct. See my response above.

<<So, I'm guessing: ADDING TO A ROLLOVER, TURNS IT INTO A STANDARD? and A STANDARD is a ROLLOVER until you add to it??>>

As stated, add anything EXCEPT money from another qualifed retirement plan to a rollover or "conduit" IRA and that IRA becomes tainted forevermore. It changes into a plain ole vanilla, traditional IRA that cannot be transferred to a new employer's qualified retirement plan.

<<What am I missing here? Is there really no such thing as a 'rollover IRA' is it just a term used to describe a traditional IRA that was funded by a rollover that is still eligeable to be rolled into a new employers plan? Any insight would be helpful.>>

A rollover or "conduit" IRA has always been a form of traditional IRA. It's just one that contains money that originated from an old employer's qualified retirement plan and nothing else beyond the earnings on those monies.

Regards…..Pixy

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Helter,

<<Anyone know any good resources for Early Retirement information:
1. how much to tax advantage vs. not.
2. medical insurance costs
3. other budgetary concerns for an early retiree?>>

OOOOOOOOOOO!!!! I'm so glad you asked. I have been told on good authority that the Retirement area will finally open on TMF next week. In that you will find a series of 13 steps to retirement written by (who else?) a most splendiferous Fool, namely me. You will also have links to retirement plan descriptions and some good calculators that will help you in your quest.

Be patient, and all shall be yours.

Regards...Pixy

P.S. If for any reason you don't see this by a week from tomorrow, address all protests to our Fool's School Principal, the inestimable TMF School. She can handle the ensuing outcry with equanimity, I'm sure. If not, she will pass the buck along to our editorial content goo-roo, TMF Hoops, who as I write is putting the final touches on these long awaited pearls of Foolish truisms. Ah, what the heck. You don't see it, send both of them a message.

(Gawd, I love roiling the pot!)
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