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401(k) Rollover

When you leave an employer and you have a 401(k) retirement plan, you have to make a choice about what to do with your 401(k) investment plan. If you decide to move your 401(k) it is called a rollover. You can rollover your 401(k) to an IRA, individual retirement account, or to a new qualifying plan. The IRA is usually the best choice for a couple of reasons. IRA’s have similar conditions for retirement funds, and the goal is to keep as much as possible for retirement. Less fees and penalties should be enough of a reason to choose an IRA for your rollover.

While you may not be required to consolidate your retirement accounts or rollover to an IRA, it is p

Cashing in your 401(k) is probably the worst decision you could make, unless your 59 ½ or older. Aside from the loosing the tax differed status for your money, you will owe all the taxes due on the money you take out, you will be charged a 10% penalty for early withdrawal. If your account is a Roth 401(k) then your money was taxed before you put it in but you will still be charged a penalty. However, most 401(k) plans offered by employers are not Roth. Of course in cases of extreme hardship the rules can change and penalties can be waived. This applies only in certain and rare cases.  

Leaving your 401(k) with your previous employer could have undesired effects should your former employer go under, change their plan, or merge with another company. But regardless of unforeseen disadvantages, you will most likely pay more in fees and expense by keeping it with your former employer than if you were to switch it to a fee-based brokerage IRA. You will have to pay management and bookkeeping fees for the administration of your 401(k). 

You can rollover your 401(k) to your new employer’s plan, but only if you do so before leaving your old employer. While this might seem like the simplest option you should review your new employer’s plan and investment opportunities. You want to make sure you don’t loose options or benefits in your rollover.

You should work closely with your financial adviser to avoid or minimize many of the internal fees and expenses associated with rollovers, 401(k)’s and IRA’s. You may also want to find out what the cost would be to rollover into a self-directed brokerage IRA. This might be more expensive but could give you greater control of your retirement portfolio.

Options for your 401(k):

• Rollover your 401(k) to an Roth IRA allowing your money to stay tax-deferred.
• Cash out your earnings and pay heavy fees, penalties and owed taxes.
• Leave your plan with your previous employer and pay administration fees.
• Rollover your 401(k) to your new employer if you qualify.