How to Calculate a 401(k) Rollover

Calculate personal financial statements carefully.

Many calculations take place in a 401k rollover. Some calculations measure returns on various assets held in the fund, and some reflect the value of the assets being rolled over. Every investor must decide for herself what are the best measures of risk and return to employ in their retirement calculations.

Instructions

1. Calculate the dividend yield of every stock and bond being rolled over into a 401k. Total the amount of dividends and divide by the current value of the stocks held. This is the dividend yield. Total the amount of interest payments and divide by the current value of the bonds held. This is the current bond yield.

2. Compute the annual return of a stock or bond. Add the dividends or interest payments received and the difference in the market value of the stock or bond a year earlier. Divide the income and gains or losses in the bonds by the value of the bond itself. The result is the annual gain or annual return of each asset.

3. Aggregate all gains and income received in the past year and divide the results by the total value of all assets. The result is the annual return of the portfolio. Compare your results to that of a benchmark of stock returns such as the Standard and Poor 500 to see if your portfolio is underperforming or overperforming compared to market averages.

4. Add all assets to be rolled over. For private placements or stock that is privately traded, use best estimates of value. Know that a rollover amount is the taxable amount of all gains, losses and deposits in the account. The sum is a taxable amount.

5. Make certain that the amount deposited is equal to the amount transferred. Different trustees use different pricing mechanisms, so be certain that all monies are carried at true market to market (the price equal to the closing price) for all securities. Compute all monies deposited into the account as contributions versus the current market value. The net amount is profit (or loss) earned in the account. Divide by the number of years you are making contributions for a rough estimate of annual return.

Tips & Warnings

• Consult a tax professional about ways to increase the contributions you make into a 401k or other retirement plans. It is possible to have more than one retirement plan.

• Make certain that you follow all IRS rules in a rollover. Failure to do so can bring about a tax liability.

References

• 401k Withdrawals

Resources

• 401k Calculator