Your 401k to IRA Rollover: The Basics

A 401k to IRA rollover can be done in one of two ways. The first is to deposit funds directly, and the second is to receive funds to yourself first and then deposit. In both cases, there will be some penalties along with the benefits.

Why Choose an IRA?

In an IRA, your funds will grow tax free. Many people prefer this structure's stability over 401k options as well. However, if you are not 59 1/2 years of age, then a rollover will appear like a withdraw from your 401k account. This means you will have to pay a 10% penalty. You will also have to pay taxes upon withdrawing your funds from your 401k, no matter your age.

Direct Deposit

Moving your funds straight from your 401k to your new IRA will usually be smoother, requiring less forms and will also be less expensive. You may contact an IRA rollover company to assist you with this process.

Personal Deposit

If you elect to have the funds given to you first, you must deposit them in full in an IRA account within 60 days. You will have to fill out more forms, and there is a chance these forms will not be filed on time. This is a riskier option.


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