Previous employer's 401k rollover to IRA or SEP IRA

[bhJogdt]

Hello, I have previous employers 401k account and possible would like to rollover to IRA account.i have two IRA's one is traditional and other is SEP ira. Does it matter if I pick either one? how taxes are handled when it reaches to the retirement age/qualified withdrawal in either IRA ?. it is beneficial to leave as is in 401k(leaving money in 401k limits my investment choices and fees are heigher )

Thanks

[ThomasM125 · Accepted solution]

It won't matter which one you roll it over to, as long as they don't have non-deductible contributions in them. The tax on them when you take distributions will be the same either way, they will be fully taxable at ordinary income tax rates.

[dmertz]

Nondeductible contributions in your traditional IRAs are not a factor because basis in nondeductible traditional IRA contributions does not belong to any particular one of your traditional IRAs.

For tax purposes it does not matter which of these two IRAs receives the rollover.  However, for protection  against creditors it might be appropriate to roll the funds over to an entirely separate IRA (a "rollover" IRA).  It depends on the creditor protection in your particular state afforded to retirement savings.

[bhJogdt]

Sorry for late reply.I live in PA state and  have questions regarding when you said protection against creditor to rollout fund in separate "rollout IRA" so if I do create another rollout IRA account does that fund is protected v/s Tradition IRA. I thought IRA count Just one account. I have mingled non deductible contribution to the traditional ira by mistake in 2024 also I have an another SEP account so not sure what should I do. any advise will be very helpful. Thanks 

[dmertz]

Rolling over the 401(k) to a separate "rollover" IRA (an ordinary traditional IR that has simply been funded with nothing other than the rollover from the 401(k)) can allow the funds to be traced back to the 401(k) for creditor-protection reasons.  Commingling the rollover with funds from other sources such as ordinary contributions might disallow such tracing back.  Different states and the federal government have differing rules for this.  If you are concerned about creditor protection, the creditor protections afforded when the account is maintained as a rollover account would be no less than those afforded in the case where the funds are commingled with other funds and could be better.