401(k) Roll Over Information
The rollover of a 401k plan may occur when you change employers or when you retire. A 401k rollover is the process of changing a 401k into a new IRA when you leave an employer. This is also known as a rollover IRA or IRA rollover. Other options would be to take the proceeds in cash, which may leave you vulnerable to taxes on the total amount, keeping the 401k with the old employer or rolling the 401k money into a 401k program with your new employer.
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Taking the Cash
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This is the worst option for anyone planning retirement. Your old company would have to withhold 20 percent of the proceeds to be paid to the federal government. Depending on your tax bracket, you may owe more than that amount when you figure your taxes. You also may owe an additional 10 percent if you are younger than 59 1/2.
Keeping The 401k With Your Old Employer
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This is likely a better option than taking the proceeds in cash. You will not be subject to any taxes at this point. There are some drawbacks, however. People with multiple 401ks find it hard sometimes to manage their portfolios. Also, the old employer may have only a few mutual funds in which the money may be invested.
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Transferring Funds to a New Employer
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This may be a better option than the first two. If the money is transferred from trustee to trustee, there are no taxes due, and you eliminate the problem of handling multiple portfolios. Even with the money coming into your hands at transfer time, you will not owe taxes as long as you reinvest with the new company within 30 days. However, you will probably still be limited to investing in only 10 to 15 mutual funds with your new 401k.
Transfer Into a Rollover IRA
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Rolling the 401k into an IRA solves the taxation problem, as it is handled trustee to trustee. It also presents more investing options. You can also take a more active part in managing the IRA than you could a company-supervised 401k.
How to Rollover A 401k
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To roll over a 401k into an IRA is simple. Any number of financial service companies carry IRA investments. You may wish to talk to several of these, and be sure to include your accountant or lawyer if you are having trouble deciding where to move.
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