401k to IRA Rollovers

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“Every savings and spending decision you make today, maybe in direct conflict with your needs and wants of tomorrow.  Our Proven Process is designed to gain you insight into your planning and help prepare you for the greatest opportunity of success.”

– Edwin A. McKnight, LUCTC, ChFC©

If you’ve recently changed jobs and wondered what to do with your 401(k) from a former employer, an IRA rollover may be a good option for you.

There are many misconceptions about what must be done with a 401(k) when someone leaves a company. Some people think they have to cash out their 401(k) upon leaving a job. Others think that they must “roll it over” into a new 401(k). Still others believe that they must leave the 401(k) where it is. None of these are true, and none of them are false. These aren’t “musts.” They are options. The big question is: which option is the right option for You?

If you have enough money in your current 401(k) to meet the minimum requirement, you could leave your money where it is. Should you? Well, it depends. If you feel the plan has good investment choices and the annual fees are reasonable, leaving your money there to mature could be a good option for you.

If your new employer offers a 401(k), you could choose to “roll” your money into that plan, but then you will be limited to the new plan’s investment options. So should you? Once again, it depends. You’ll want to look into the structure of the new plan, the fees and the investment options.

If managing where your account is held and how it is invested is important to you, moving your money into an IRA rollover account could give you a great deal of flexibility. It also offers you more distribution options, once you are eligible. Additionally, you could open a brokerage account or purchase a CD, provided the account is titled as your IRA Rollover Account.

The temptation to get a lump sum of money can be too great for some, especially if they have just lost their job or feel that they are in some sort of financial bind. They may choose to cash out their 401(k) upon leaving a job. But what are they giving up? Well, 10% for starters. If they are younger than 59 ½ years old when they cash out their 401(k) they will incur a 10% penalty, unless a special exception applies. Even if they qualify for a hardship distribution does not exempt them from the additional 10% tax.

But here’s what really hurts: they are giving up part of their retirement fund or (in many cases) starting over from zero. Fighting temptation now may, potentially, lead to bigger rewards later.

If you’re unsure which choice is best for you, or if you’d like to learn more about your options, McKnight would be happy to schedule an appointment with you.