Should I Rollover My 401k Retirement Account?
Easy How to Do It
When you leave your employer, it's time to consider a 401k rollover of your retirement money. A rollover is a tax-free transfer of your assets from one qualified retirement plan to another. With a 401k rollover, you move your money from your 401k account to another account, usually called a rollover IRA account. In general, the advantages of doing a 401k rollover outweigh the disadvantages.
Advantages When You Rollover a 401k Retirement Account
You should definitely consider a 401k rollover if you have changed jobs and are no longer working at the same company. A 401k rollover is also a good idea if you are retiring soon or if you have already retired. Here are the important advantages.
With a 401k rollover into an IRA retirement account, your money is still tax-deferred.
- Generally, there is no cost for a 401k rollover.
- The transfer of your money from the 401k to your IRA is accomplished automatically from one trustee to another trustee, so you don't take possession of the money personally.
- With an IRA Rollover account, you can choose from a broad range of investments. You are not limited to the few investments that your employer's 401k offered. You can choose stocks, bonds, index funds, and other allowed investments. Your broker will automatically make sure that your IRA account meets federal rules in this regard.
- You have better access and control of the account. You may buy and sell investments at any time you choose.
- Upon your death, an IRA offers tax advantages to your beneficiaries, with tax savings over a 401k.
If you have had several employers, you may have several unattended 401k accounts. With a 401k rollover of each account, you can consolidate your retirement money into one rollover IRA, making it much easier to manage your retirement money.
- A 401k rollover removes your account from the records of your former employer, for your privacy.
- With a rollover IRA, you may have the option to convert to a Roth IRA at a later date, for more tax benefits.
- If you want to consolidate all your 401k accounts into a single 401k offered by your current employer, you may be eligible to do this. The benefits manager at work can help you with this 401k rollover to another 401k.
Disadvantages When You Rollover a 401k Retirement Account
When you compare a 401k retirement plan to a rollover IRA, there are several disadvantages to consider.
- If you withdraw money from your IRA before age 59 1/2, there is a 10% penalty. However, the penalty for early withdrawal from an IRA is waived if you use the funds to purchase your first home, pay for medical expenses, or become disabled.
- The limit on your annual contribution to an IRA is much smaller than the contribution limit for your 401k. However, you can only contribute to a 401k plan if you still work for the employer.
- A 401k plan allows you to withdraw money for retirement beginning at age 55. An IRA does not allow you to start withdrawals until the age of 59 1/2.
How to Rollover a 401k Retirement Account
A 401k rollover to an IRA is not difficult. The usual procedure is to select a major brokerage like Ameritrade, Schwab, Fideltiy, eTrade, Scott, or one of the many other well-qualified brokers as your IRA account trustee. Then open an online account with this broker, called an IRA Rollover account. The 401k rollover can be painless. An online broker provides a retirement planning counselor by phone. This counselor will help with the rollover process from start to finish, will contact your 401k plan administrator and complete the paperwork for you.
Please note: An IRA account is different from a Roth IRA account. A rollover of a 401k account to a Roth IRA often incurs substantial tax liability in the year of the rollover. Consult a professional tax planner before you move your retirement funds from a 401k plan into a Roth IRA.)
A do-it-yourself 401k rollover is also an option for you. After you open an IRA rollover account at an online broker, contact the plan administrator of your 401k account, request the form for a 401k rollover, complete the paperwork and submit it to the 401k plan custodian. The transfer of your money will be made for you from the former trustee to the new trustee. They should charge no fees for this transfer.
I wish you much success in life.
The Retirement Coach
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