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401k Rollover: Is It A Smart Move?Posted by SEP-SOLO-IRA-401k-ROTH on: 2007-06-27 15:57:35 in category:
401(k) [ Print | Permalink / 0 Comment(s) ] Tony Bass You have been with the same employer for ten years and during that time you have contributed to your employer's 401k plan thereby building up a nice sized retirement nest egg. However, times have changed and you have decided to take a job with a new company. Now that you are about to change employers, what are your options for taking your money with you? First, congratulations on understanding the benefits of investing in your company's 401k retirement account. Over the last ten years a portion of your pay was directed into a tax-deferred vehicle which allowed you to accumulate funds. These funds have presumably grown over the years and you are interested in making the best moves with your retirement money. Also, it is noted that you desire to take your retirement funds with you and not leave them with your previous employer. This is a smart move as most financial advisors highly discourage individuals from leaving their money with an employer whom they no longer work for. So, what is your option? What is a 401K Rollover? A 401k rollover is simply the process of moving your funds from a 401k plan of a former or current employer into either an Individual Retirement Account (IRA) or another qualified retirement savings plan. Unlike some employee sponsored retirement plans, a 401k plan is portable. The funds that you have accumulated can be taken with you to either your new employers 401k plan or rolled over into a traditional individual retirement account. This becomes especially important should you happen to switch jobs. 401k Rollover Options There are two 401k rollover options available to you" 1.) Complete a 401k rollover to your new employer's 401k plan This particular option may or may not be available to you. It depends on whether or not your new employer will accept a 401k rollover from your previous company. Also, this practice is typically designed for someone who has another job offer before leaving their current employer. Most financial advisors will discourage you from this type of 401k rollover simply because it locks you into the investment options of your new employer's 401k plan. You limiting your investment choices to only the menu selection choices offered by your new employer. Once you have completed your 401k rollover to your new employer's 401k plan, it becomes difficult if not impossible to move your money out of their plan. Often times, the only option available to you, is to wait until you leave the company before you can roll your money into the second 401k rollover choice. 2.) Complete a 401k rollover and move the assets to an Individual Retirement Account (IRA) With this option, you can complete a 401k rollover and distribute your retirement funds into a host of available open market investment options. Your money continues to grow tax deferred while giving you the total freedom and flexibility over asset allocation. Unlike most 401k plans which lock you into your company's plan for the length of your employment there, by moving your 401k rollover assets to an Individual Retirement Account (IRA) you can exercise the government limits on 401k rollovers to once every twelve months. How do I apply for a 401k rollover distribution? Once you have terminated employment with your company, a distribution package should be sent to you containing the details your options. There should also be forms available that give you the option of rolling over your 401k funds. Be aware that your employer is not responsible for ensuring that you initiate a 401k rollover. Ensure that your previous employer has up to date contact information for you and knows how to reach you should there be any issues. When can I expect to receive my 401k rollover distributions? No two cases are the same in regards to the time frame it will take you to receive your 401k rollover distributions. Each company has its own rules relating to how often they pay out 401k rollover distributions. For most companies, you should expect within 30 days. However there can be cases where you might have to wait quarterly or even annually. This depends on the rules of the employer. If you are interested in knowing the exact time frame it takes to receive 401k rollover distributions, you should contact your Human Resources department and ask a benefits advisor. Will I have to pay taxes on my 401k rollover distributions? There are several options on what you can decide to do with your 401k retirement savings. However, if you conduct a direct 401k rollover, you will not have to worry about taxes or early withdrawal penalties. A direct rollover occurs when the money is transferred directly into the new account. Make sure that your previous employer sends the check directly to your new Individual Retirement Account and not paid directly to you in your name. About the author: This article has been provided to you by Tony Bass, National Financial Wealth Strategist, for Bass Financial Solutions, Inc. If you would like to receive, "Learning the Secrets to Maximizing Your 401(k) Rollover and How You Can receive 13.68% Guaranteed... Even If Your Company Doesn't Offer a Matching Program", please visit http://www.rollovermoney.inf o |
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