Where To Rollover A 401K?

Tips to think about when deciding where to rollover a 401k

If you have a 401K plan with your employer and have decided to leave the company for whatever reason, you have several options when deciding where to roll your 401K.

Do I have to rollover my 401K?

If you take a lump sum distribution from your 401K rather than rolling it, you will be subject to both state and federal income taxes and a 10% penalty. This would be a devastating hit for your portfolio. You do have 60 days to roll the money over to another qualified account and avoid the penalty and taxes. If you decide to do this and taxes were taken from your distribution, you will be credited for the payment on your tax return.

Where should I rollover my 401K?

You have three options to consider when rolling over your 401K: your new employer’s 401K, a traditional IRA or a Roth IRA.

Rolling your 401K into your New Employer’s 401K

If your new employer allows, you may rollover your 401K into their 401K. The plan administrators for both companies should be able to help you with the transfer.

Rolling your 401K into a traditional IRA

If you are expecting to leaving your current employer, do some research as to various financial institutions’ IRA’S and decide which one you would like to work with. Open the account and then contact the plan manager of your former employer to transfer the funds directly to the new IRA account. You will avoid taxes and the 10% penalty using this option.

Rolling your 401K into a Roth IRA

You may opt to rollover your 401K into a Roth IRA. You will need to have the Roth IRA opened before the transfer. Because the money that you contribute to a 401K is pre-tax dollars and Roth contributions are post-tax, you will owe the income taxes due on the 401K funds, but will avoid the 10% early withdrawal penalty and will not owe income taxes when you eventually start taking qualified distributions.

Related posts

1. What Are The Tax Implications Of Rolling Over My 401K?
2. Can I Rollover My 401K To A Roth Ira?
3. When Can I Rollover My 401K?
4. Can You Rollover An Ira To A 401K Without Penalty?
5. What Is A 401K Rollover?

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