401(k) Rollover

A 401k is a traditional retirement savings account designed to allow employees to contribute tax-deferred payments towards their retirement. The funds are also easier to move around. Here's an overview of 401k rollovers and what to do in specific situations when planning to move retirement savings.

What is a 401(k) Rollover?

A 401k rollover occurs when you transfer funds from your current 401k account to another tax-advantaged retirement account. Popular rollovers include individual retirement accounts or other 401k accounts when you get a new job. There are various 401k rollover rules, so it is best to work with a financial advisor to help you make informed decisions regarding your 401k.

The 4 Options Someone Has With an Old 401(K)

When considering what to do with a 401k from your previous employer, you should thoroughly consider what choices are available to you. A rollover may benefit some people but isn't always necessary. Here are four options for account holders with old 401k:

1. Leave Your 401(K) with Your Old Employers Pan
You can leave your 401k with your old employer's plan if you need more time to assess other options. Sticking with your old 401k also makes sense if it features lower investment fees than your new employer or IRA offers. You'll still enjoy tax-deferred contributions and protection from creditors, but you can't make further payments to your former employer.

2. Rollover the Funds into an IRA
401k rollover to an IRA is an option when stepping away from employer-sponsored plans. You can also rollover 401k funds to a traditional IRA when switching jobs, retiring early, or consolidating your retirement accounts. IRAs allow account holders to grow their funds and choose investment options but aren't protected from creditors unless you file for bankruptcy.

3. Rollover into a New Employer's Plan
If you prefer employer-sponsored retirement programs, you can rollover old 401k funds to a new 401k plan offered by your current employer. Managing investments with a single 401k is easier, and new plans may lower costs. Your assets will also be safe from creditors, although not all new employers accept 401k rollovers from previous employers.

4. Cash Out If You Must
It's possible to withdraw all funds saved in a 401k account, but such a move comes with financial consequences. You'll pay taxes on all withdrawn amounts and the 20% federal holding rate. Involve an experienced 401k advisor to navigate the rules and avoid losing your hard-earned savings. Cash-outs are only advisable for emergencies or when you need cash urgently.

I Left My Job, Now What?

If you have left your job and haven't taken a new job, the best solution may be to complete an IRA rollover. Transferring the funds to an individual retirement account offers more control for your investment. You can also leave the funds with the old 401k but will face challenges when you stop making payments.

Moving From One Company to Another

If you have a new employer, you can review their retirement plans and compare them with your old plan. Some employers allow you to rollover funds from previous employment to continue growing your account. It's also possible to leave the funds in your old account or complete an IRA rollover to forgo employer-sponsored plans.

Consequences of Taking a Distribution Vs. A Rollover

A 401k distribution is when you take money out of your retirement account and use it for retirement income. It's a withdrawal if you take the money out before the age of 59½ and is subject to limits and fees. You'll also pay the taxes.

A rollover involves transferring funds from a 401k account to an IRA or another employer-sponsored plan. It follows standard 401k rollover rules, but each company has unique requirements, and some don't accept such rollovers.

Can I Live On My 401k?

It depends on how much you've saved compared to what you need to live a comfortable lifestyle. If you have enough funds in your account and are nearing retirement, you can live on your 401k. An experienced financial advisor will help you determine what your ideal retirement strategy should entail and if you have enough funds to support your lifestyle.

How Much Should I Be Saving To Retire The Way That I Would Like To?

The standard rate is 10% to 15% of annual income, but you have the freedom to save more, depending on your needs. The best approach involves a 401k advisor to assess your needs and opportunities. You should save more if you plan vacations, investments, and other expensive post-retirement goals.

Asset Allocation of 401(k)

401k accounts are allocated as "solid" assets during the saving period and are subject to early withdrawal fees and taxes. When you reach 59½ years (recommended withdrawal age), the assets become "liquid" and are subject to tax deductions. You, however, won't pay for early withdrawal fees.

FAQs

1. What is a 401k rollover?

401k rollover refers to transferring funds from an existing plan to another. You can rollover your 401k to an IRA or another 401lk offered by your new employer.

2. Can I retire early?

Yes. Many situations, such as accidents, illness, relocations, and more, can force early retirement. Other employees also retire for personal reasons, at free will.

3. Should I pay an advisor to rollover my 401k?

Yes. Working with an advisor to rollover your 401k to an IRA can save you time and effort, besides maximizing your savings. You can also get professional insights about existing options.

4. What happens if I don't rollover my 401k?

Your 401(k) will continue to accumulate interest until there are no more funds in the account. It's crucial to continue making payments within the 60-day deadline to avoid fees/penalties.

5. How long do you have to rollover a 401k after leaving a job?

You have a maximum of 60 days to complete 401k IRA rollover or a new employer plan. Financial penalties apply after 60 days, so you should rollover as early as possible.

6. Can I move my 401k to an IRA without penalty?

Yes. There is no penalty for completing a 401k IRA rollover, so you can complete the due process within sixty days without fees.
Transferring funds between retirement accounts is a daunting process that you shouldn't navigate alone. Work with Cantrill Financial Group to find out more about 401(k) Rollovers Near Frisco, TX and how to maximize your opportunities.