Choosing to rollover 401K funds is a big decision. These rollovers are nothing more than ‘transfers’ of your money that is in a 401K retirement plan that exists with your employer. Should you change jobs, then you have some options to consider about just what is going to be the best move for you to make with your investment. Do you roll it over into an IRA? Do you take it out in cash? Just what is going to be the wisest choice for you? The important thing is that you follow the 401k withdrawal rules.
You may choose to make a trustee to trustee transfer that will move your 401K from the place it resides now straight into an IRA account. When you choose this option, you get the benefit of not being held liable for any taxes. You also don’t have any type of limits on the amounts of cash that you can move. This can be a very important decision, because for the most part this type of move involves a very substantial amount of cash.
Of course, the first option that comes to mind is the ‘cash’ option. Just take the money and run. But this can be a very costly move. In fact, most investors consider this act to be the very worst of all your options. It will include lots of tax liability. Your employer is required to hold out a good 20% right off the top for federal taxes. Then your cash is going to be taxed like it was regular income. And it just gets worse as you go on.
You may find out the you actually owe MORE than the 20% that was taken out by your employer. This depends on your tax bracket. If you happen to be under age 59, then additional penalties may be applied, up to 10% more. So you can see how things can go from bad to worse whenever the cash option is chosen. Not to say that in some circumstances it’s not beneficial, but all things considered, it’s usually not a good choice.
After dismissing the cash option, you can consider leaving your money where it is. Just let it sit with your old employer’s plan. This can be a much better option than the cash option, because of dodging the tax liabilities and the penalties. But it doesn’t come without some of it’s own downfalls. Managing separate accounts can be quite confusing and quite frankly, a headache to do. It diminishes your ability to properly invest and focus on what you need for your account.
You may also opt into your new employers retirement plan. Most new employers will allow you to make the transfer from an old account into their plans. This saves a lot of headaches for you and gives you more flexibility in managing your money. It’s just much easier to focus on one account as you watch it grow and make decisions for increasing it for the most outcome.
When you roll your account over to an IRA you solve a lot of problems. It’s almost a sure bet that with your old account you weren’t getting any professional financial advice. But when you step into an IRA account, you’ll receive a licensed advisor to help advise you on how to manage your money and help you build a good portfolio with good investing.
Choosing to rollover 401K retirement funds is usually a good idea. By transferring your cash into an IRA, you open yourself up to guidance in your investing, and save yourself all the headaches of penalties and taxes that will cost you plenty. It provides more control and easier management. It definitely is the best choice of the ones we mentioned above. Just make sure you follow the all important 401k withdrawal rules and you’ll have no headaches.
If you are ready to rollover 401k funds to a qualified IRA account be sure to follow the 401k withdrawal rules, as there are some painful tax consequences if you slip up.
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