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401(k) Planning

Retirement can be an exciting phase in life. It can also be a source of anxiety characterized by questions like, "I left my job, now what?" There are several retirement options available, which give the employees the power to choose what happens after retirement.

The 401(k) rollover bill was passed in 1978 to complement social security. Performing a rollover means moving money from your 401(k) account to a tax-advantaged account. The new account can be another 401(k) account or an IRA (Individual Retirement Account).

It helps to research the market before moving your funds. You can also speak to a 401(k) advisor to find a suitable option. Our advisors are familiar and knowledgeable on 401(k) laws and rules.

401(k) rollover isn't reserved for retirees alone. You're free to arrange for one if you aren't happy with your employer's retirement plan choice. Also, you may want to perform a 401(k) rollover if you're moving from one company to another.

<b>Benefits of a 401(k) Rollover</b>

Benefits of a 401(k) Rollover

Aside from taking control over your retirement income, 401(k) rollover is a reliable hassle-free investing option. It's also an effective way of keeping your money organized and portable too. This is due to its portability attribute that allows account holders to move their money quickly. So, if you're changing jobs, here are the four primary options that are available to you with your 401(k):

  • Leave your 401(k) with your old employer's plan
  • Rollover cash into an IRA
  • Rollover into a new employer's plan
  • Cash-out if you must

Leaving your 401(k) with Your Old Employers Plan

You can leave your money in your old 401(k) account to give yourself time to make the best investment decision. It also makes sense to leave your money with your old employer if they offer competitive returns and charge reasonable fees.

Remember, your old 401(k) is subject to your former employer's terms and conditions. For instance, the employer can charge higher fees over inactive accounts. Nonetheless, you'll still enjoy the tax-deferred advantage associated with 401(k) plans. In other words, you'll not lose a single coin to taxation.

Depending on your account balance, typically more than $5,000, you will have some time to consider your options. It's critical to adhere to that specific rule to avoid early withdrawal penalties and federal taxes.

Rollover Cash into an IRA

Rollover 401(k) to an IRA could be an option if you're changing jobs or retiring early. You can also roll over your 401(k) to a traditional IRA when aging out of your employer's retirement plan. You'll not only enjoy the flexibility bundled in a traditional IRA but also have more control over your money.

Rollover Into a New Employer's Plan

Similarly, you can rollover your funds to your new employer's retirement plan. The terms here are similar to the previously discussed two options. However, the limiting factor is that some employers don't allow rollovers from other 401(k) accounts. If your new employer allows rollovers, one of the 401(k) rollover rules you need to observe is that you can perform only one rollover per year.

Cash-Out if You Must

Lastly, cash out, but only if you must. Why? Your employer will withhold 20% of your savings to cater for tax owed (if any). Each withdrawal is subject to federal, state, and local tax.

On top of that, if you are under the age of 59 ½ cashing out can be treated like an early distribution, which could mean an early withdrawal penalty of 10%. Those steep fees may not be worth the pain unless you have run out of other options.

Frequently Asked Questions (FAQs)

What is a 401(k) rollover?

A 401(k) rollover means moving your retirement savings to an IRA or a new 401(k) account.

What happens if I don't roll over my 401(k)?

If you don't want to perform a 401(k) rollover, you can leave your money in your 401(k) account. Besides other services like distributions, the money may also be able to help you access a loan, if plan guidelines permit it.

How long do you have to roll over a 401(k) after leaving a job?

This will depend on your balance and the plan guidelines. Please consult your specific plan for the rules and guidelines.

Can I move my 401(k) to an IRA without penalty?

You'll not be penalized for moving your 401(k) to an IRA.

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