The Best 401k Rollover Advice You Can Use

Are you looking for 401k rollover advice? You should know that some information is better than the rest. Your responsibility is to listen to the right advice and forget about the details that are confusing to you. Rolling over your 401k funds is not a decision to take lightly. The process that you follow will determine how your finances are affected now as well as in the future.

Rollover to IRA

One of the most common options is to roll over your 401k into an IRA. This is a great way to be in charge of your own investments while avoiding penalties and paying taxes at the present time. When you roll your money into an IRA, you are doing so tax free. You will not pay taxes until you begin to withdraw the money during your retirement years.

You also have the ability to roll over your funds into a Roth IRA. With this, you are going to pay taxes on the rollover amount, but when you begin to withdraw the money, it will be tax free.

Rollover to a New Employer

Are you going to have access to a 401k at your new job? If so, you may want to take your current funds and roll them into a new account. This allows you to avoid the 20 percent withholding as well as paying income tax at the present time. The main argument against this is that you will once again have to choose from the investments that are offered by the plan, unlike with an IRA, which would provide you with more options.

Lump Sum

Are you interested in taking all of the money from your 401k in one lump sum? You have the right to do this, but there are many reasons to decide against it. For one, there is a mandatory tax withholding of 20 percent. This means that you will receive only 80 percent of the money. Along with this, you are responsible for paying taxes on contributions and earnings. This is on both the federal and state level.

To make things even worse, if you are under the age of 59 1/2,  you will be charged a penalty of 10 percent.

Leave It Alone

Those who are confused by these options and unsure of what to do next should consider leaving their 401k with their former employer. The money will continue to grow, tax-free. That being said, you will not be adding any more money to the account. There is no reason to be in a rush. You can leave your funds in this account for the time being and then take advantage of one of the options above when you are ready to do so.

With this 401k rollover advice, you should have a better idea of what to do with your money, as well as of the pros and cons of every potential decision.

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