Do you really want to leave your 401k money with your old employer? More than likely not. But, a lot of people choose that route because they “don’t have to think about it then”. If you are going to make some changes, here are a few things to remember.
What is a 401k Rollover?
The transfer of assets from an employer’s retirement plan when you leave your employer – whether retiring or changing jobs.
What are my Options?
- Leave the assets in the employer’s plan (if the plan allows – this is not always a possibility) – This limits you to the rules and investment options in the former employer’s plan.
- Withdraw the assets in cash – Because this distribution is considered taxable income, taking a distribution in cash usually has tax consequences, such as a withholding of 20% and a possible 10% penalty if you are younger than 59 ½.
- Rollover to a new employer’s plan – subject to the rules and investment options of the new employers plan.
- Open a Rollover IRA – You can move eligible assets directly from a retirement plan to a Rollover IRA. The advantages of Rollover IRAs include:
- Preserving tax advantages – Eligible assets can continue to grow tax-deferred.
- Potentially more investment choices – With a Rollover IRA you can invest in stocks, bonds, mutual funds, annuities and more.
- Flexible beneficiary designations and stretch-out options for all beneficiaries through an inherited IRA account.
- Easy access to you assets – You can withdraw money at any time from a Rollover IRA. Distributions will generally be subject to current taxes and a 10% penalty if they are younger than 59 ½ (unless an exception applies).
Take a few minutes and understand your options. Most people I talk with would rather have their money invested in their own account, than have it stay with an old employer they may not particularly like.
Did you find the rollover process easy?