Subscribe Feed (RSS)401k rollover 101
Knowing when and how to execute a 401k rollover is an important part of planning for your retirement in an increasingly volatile economy.
In these uncertain economic times, taking ownership of one’s future retirement plans is an urgent necessity. With the collapse of Wall Street and the precarious future of government retirement benefits such as Social Security, it’s becoming increasingly apparent that taking an active role in planning our retirement finances is something we all need to do.
One of the best ways of captaining your own destiny regarding retirement is participating in a 401k plan. A 401k plan allows workers to invest savings into mutual funds or other investments and defer taxes on these investments. Many employers make matching contributions to these 401k plans, making them an attractive way to build wealth for retirement. However, these contributions stop when you quit or change jobs, and if you cash out your 401K plan at this point you can incur substantial tax liabilities. Knowing what to do with your 401k after making a career move is important.
The best option is for you to do a 401k rollover, which allows you to move your existing plan into another retirement account, but without being hit with any taxes or penalties.
When rolling over a 401k plan, you have three basic options:
Roll over into another employer’s 401k plan. The pros for this option are that there usually aren’t any investment minimums, so even if your current savings are small you can get into the plan. Of course, once you roll over into your new employer’s plan, you’re bound by that plans rules and you generally aren’t allowed to make withdrawals.
Another roll over option is to roll your account over into a brokerage IRA. The benefits of this move are increased flexibility and the ability to take advantage of Exchange Traded Funds. A brokerage IRA allows you greater control over how your 401k funds are invested, but it’s important for you to be an educated investor to take full advantage of this option, so be sure you’re up to snuff on the markets before you move your retirement funds into a brokerage IRA. Also be aware that every time you execute a trade in a brokerage IRA you will have to pay a fee. However, you can avoid many of these fees by investing with discount brokers such as Zecco or TradeKing.
The third basic option is to roll your 401k into an IRA held by a mutual fund company. The mutual fund company will invest your money for you, and brokerage and other fees are generally very small or non-existent at these firms. The downside is that you won’t be choosing your investments, but if you doubt your ability to pick stocks and other investments, this may be the safest route for you.
Take control of your retirement by picking the 401k rollover option that’s best for you. Retirement should be something to look forward to, not something to worry about.
Tags: 401 k rollovers, laws, options, rules
