Can I Add Money to a Traditional IRA After a 401(k) Rollover?

When you leave your job, you get to take some or all of your 401(k) with you. If you deposit it in a bank, you pay tax on everything you withdrew. There's no tax, however, if you roll the money over to a traditional IRA. After the rollover, you can make regular contributions to the IRA as well, but that may be a mistake.


Commingling regular IRA contributions with rollover money is perfectly legal, but it has some drawbacks. If you keep your rollover confined to its own IRA, and then later you sign up for a 401(k) at a new employer, you can roll over the IRA to the new 401(k). If you add regular contributions to the rollover account, though, you sacrifice that option.

Conduit Account

Rollover IRAs that hold 401(k) money are also called conduit IRAs because they can channel money from one 401(k) to another. There are no limits to moving the money out: you can do it the week after you leave your old job, or 20 years later. You are not required to commit to using the IRA as a conduit account. If you decide two years later that you're never going to roll the account into a new 401(k), you can start contributing to it instead.

ERISA Protection

One big difference between 401(k) and IRA accounts is that the workplace plan is protected from your creditors by the Employee Retirement Income Security Act. Even if you file bankruptcy, your 401(k) is off-limits. As of 2013, IRAs are only shielded to around $1.17 million in bankruptcy, and they aren't protected from lawsuits and other financial threats. ERISA protects your 401(k) rollover from creditors, but only if the money is kept separate. Commingle it with regular contributions, and you only have regular IRA protection.


Before you roll over any money, ask yourself if that's the best move for you. With an IRA, you usually have a greater array of investment choices than with a 401(k). That's great if you're good at investing, but if you'd rather just sit and let the account work, a 401(k) demands less attention. If your 401(k) investments are doing well and the plan lets you keep the money there, there's no need to rock the boat.

About the Author

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.

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