Debbie Davis
Financial Consultant
Don’t Leave Your Savings Behind: A Rollover Brings New Life to Your Old 401(k)
The more money you can shelter from federal income tax and the longer you can keep it sheltered, the better. Keep that in mind if you're making a career move or planning your retirement. You may have an excellent opportunity to take money from your existing retirement plan and roll it over into an Individual Retirement Account (IRA).
The more money you can shelter from federal income tax and the longer you can keep it there, the better. Keep that in mind if you're making a career move or planning your retirement. You may have an excellent opportunity to take money from your existing 401(k) retirement plan and roll it over into an Individual Retirement Account (IRA).
Along with a 401(k) or other employer-sponsored retirement plan, an IRA (Individual Retirement Account) is one of the best retirement-savings vehicles you have available. And if you are on the "plus" side of 50, you'll want to focus your efforts on making sure you have the resources available to enjoy the retirement lifestyle you deserve. One of the best ways to protect those tax-preferred assets is to roll them into an IRA.
What is a 401k Rollover?
A 401(k) rollover occurs when you change jobs or retire and then elect to transfer or "rollover" your 401(k) into a new IRA. This process of transferring a 401(k) with a previous employer into an IRA is referred to as a “401k Rollover” or “IRA Rollover.”
A direct rollover from a 401(k) to an IRA is made tax-free and there is no tax liability. There is no limitation on the dollar amount you can rollover from your previous employer's retirement plan.
When I change jobs or retire, what are my options for my 401k?
When you leave your employer, you will need to decide what do to with the money you have accumulated in your employer's 401(k). For some investors this may represent a sizeable investment. As a result, it is crucial to make an informed decision.
There are several options available to you:
- Take the money out in cash
This is the worst option for most individuals. Taking a distribution in cash has large tax consequences and will be taxed as ordinary income. In addition, you are likely to be penalized 10% if you are younger than age 59 1/2.
- Leave the money with your old employer's retirement plan
For many investors who are saving for their retirement, this may be a better decision than taking cash since you will not be penalized or taxed. However, most employers’ retirement plans have a fairly limited number of mutual funds choices leaving you less room for diversification.
- Transfer the money into your new employer's retirement plan
Most employers allow you to do a transfer into their retirement plan. This avoids the potential problem of multiple retirement accounts at different employers and the difficulties of managing your investments and organizing them properly. The same issue still applies, as most employer sponsored retirement plans have a fairly limited number of investment choices.
- Transfer the money into a Rollover IRA
For many investors a 401(k) rollover into an IRA is the best option for the money they have saved in their previous employer's retirement plan. This option gives you several advantages: increased control, greater organization, improved investment flexibility and investment advice.
Here is what you need to do in order to make a rollover to an IRA:
- STEP 1: Compile your account information.
Verify the balance of your qualified plan, the name of the company the funds are coming from and the contact information for that company.
- STEP 2: Bring that information to Shelby County Investment Center.
- If it's a direct rollover (a direct transfer of an eligible rollover distribution from a qualified plan, section 403(b) plan or a governmental section 457 plan to an eligible retirement plan) SCIC will complete the paperwork for you and put in a request for the money.
- If it's not a direct rollover (funds are actually paid from a tax-preferred plan and the person re-deposits all or a portion of the distribution into an eligible retirement plan) you will have to request the money yourself or you can come to SCIC and we will help you through the process.
- STEP 3: We will open a new IRA and complete the appropriate paperwork.
For FREE advice on rolling over your 401(k) into an IRA, without current taxes or penalties, contact Debbie Davis at Shelby County Investment Center today.
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debbiedavis@fnni.com
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