An Automatic Rollover IRA, also known as a Safe Harbor IRA or Default IRA, is a type of individual retirement account specifically designed to receive rollovers from employer-sponsored retirement plans, such as 401(k)s, when an employee leaves their job and does not take action to move their funds elsewhere.

Here are some key features of an Automatic Rollover IRA:

  1. Default Option: When an employee leaves a job and has a retirement account balance below a certain threshold (typically $5,000), the employer may choose to automatically roll over the funds into an Automatic Rollover IRA. This option helps prevent the funds from being cashed out or abandoned.
  2. Limited Investment Options: Automatic Rollover IRAs often have limited investment options compared to traditional IRAs. The funds are typically invested in low-risk, conservative options like money market funds or stable value funds. However, some providers may offer a wider range of investment choices.
  3. Fees and Expenses: It’s important to review the fees and expenses associated with an Automatic Rollover IRA. Providers may charge administrative fees, custodial fees, or transaction fees. Compare the fee structures of different providers to ensure they align with your investment goals.
  4. Consolidation: If you have multiple employer-sponsored retirement accounts from previous jobs, an Automatic Rollover IRA can help consolidate your retirement savings into a single account, making it easier to manage and track your investments.
  5. Flexibility: While an Automatic Rollover IRA is designed to receive rollovers, you are not obligated to keep the funds in this account. You can choose to transfer or roll over the money into a different IRA or employer-sponsored plan if you prefer.

When considering an Automatic Rollover IRA, carefully review the terms and conditions, fees, investment options, and services provided by the IRA custodian. It’s also advisable to consult with a financial advisor to ensure that an Automatic Rollover IRA aligns with your long-term retirement goals.