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Get Your 401(k) Rollover Right the First Time

401k Rollovers Are on The Rise

As layoffs rise and workers voluntarily leave their jobs for better opportunities, the number of 401(k) rollovers are also rising. The Wall Street Journal reports that over $350 billion was moved into individual retirement accounts from the more restrictive employer-based 401(k) format. When an employee leaves a company that created a 401k account with them, they must make a choice on what to do with the balance of their closing retirement account. Making the correct choices minimizes the chance of penalties and ensures you can still retire on time.

Four Rollover Choices to Consider

When you decide to leave a job, retire from it or happen to get laid off, you have four main options for handling your 401(k) account. Fidelity says that these options are:

  1. Request the full balance in cash and pay income taxes and withdrawal penalties on it.
  2. Rollover the entire balance and all related assets to a new 401(k) plan with your new employer.
  3. Roll the account into an IRA, which does not require the backing of an employer.
  4. Continue using your former employer’s asset plan and route contributions from a new employer to it.

If you request the balance in cash, the company will have to keep 20% of it and forward it to the IRS. You will also owe income taxes and other penalties to them. This is only a worthwhile option for people that absolutely need the money to cover basic living expenses or health emergencies. Most savers will want to choose from the other three options.

Rolling Over 401k to an IRA is as Easy as 123

Many employees that find new careers shortly after leaving their last job choose to simply roll the balance into a new account of the same type. This is the simplest way to handle the process. SmartMoney says that employees should contact their old employer and fill out a few simple forms. You will receive a check made out to the organization managing the new account and must have it deposited with them within 60 days. Waiting too long to deposit it or attempting to cash it yourself will trigger an avalanche of penalties from the IRS. This is the best course of action if your account includes company stock, which will be cashed out at the current market rate and transferred without a lot of work or triggering income taxation.

Rolling Over Into an IRA is Standard Operating Procedure for a Good Custodian

Millions of people chose to move their investments into IRA accounts this year, even when another 401(k) account was available. The Wall Street Journal says that using one of these accounts provides the investor with far more control and flexibility. An IRA can contain real estate properties, gold bullion investments, and stocks all in one account. This isn’t possible with a managed 401(k); however, and workers will need to prepare for paying higher fees when using an IRA for their retirement savings.

This can be a big surprise if you have grown used to the low costs related to employer supported accounts. The process of rolling over a 401(k) into an IRA is no more complicated than transferring balances between employer plans. You can receive a check to deposit in the new account or arrange a direct transfer. Workers can also combine multiple IRA and 401(k) accounts in one new IRA account, which is not possible with any other rollover option.

You can invest funds from your IRA in U.S. gold coins minted by the Treasury Department in weights of one, one-half, one-quarter, or one-tenth ounce. You may also invest in certain gold, silver, palladium and platinum bullion. Original post by Mike Parker – The Tax Implications With a Gold IRA Investmentwww.fool.com.

Staying With The Old Account – Is That Really The Best Choice…or just the Easiest?

Keeping your money in your previous employer’s account doesn’t offer any particular benefits over your other options, but it is easy. You can still withdraw money at any time after turning 55 without paying penalties, according to Fidelity. You also qualify for lower rates and special investment opportunities offered by your employer, even though you are no longer working for them. However, you lose the ability to defer distributions after the age of 70, which is one major benefit offered when you transfer money to a new 401(k) with a current employer. You also lose the tax-deferred protection offered by IRAs and other accounts backed by employers. Income tax will be charged on all contributions made by you and a new employer depositing money into the old account. Income from investments will continue to remain tax-exempt.

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.