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Don’t Forget: Roll Over Your 401(k) When Changing Jobs

The Importance of Rolling Over a 401(k)

Have you ever left an old job and forgotten about the 401(k) you contributed to while employed there? If so, you’re not alone.

Many people leave behind their 401(k) plans when they change jobs, and this could cost them a lot of money in the long run. In this article, we’ll discuss the importance of rolling over a 401(k) and the options for doing so.

Cost of Leaving Behind a 401(k)

When you leave a job, you may be tempted to forget about your old 401(k) plan. However, leaving your funds behind could result in the loss of potential earnings.

Inactive 401(k) accounts may also result in the accumulation of high fees that can negatively impact the balance. Additionally, when you leave a job, you lose access to the resources that the company provided you to manage your 401(k) plan.

This could make it difficult for you to monitor your investments or make any changes to your plan.

Options for Rolling Over a 401(k)

There are two primary options available when it comes to rolling over a 401(k): rolling over to an employer plan or an individual retirement account (IRA). An employer plan is another 401(k) plan that you transfer your previous funds to.

On the other hand, an IRA is an individual account that anyone can open and manage without an employer’s assistance.

Rolling Over to an Employer Plan

If you have started a new job and your new employer offers a 401(k) plan, you can roll over your old 401(k) plan to your new employer. To do this, you will need to open a new 401(k) plan account with your current employer and then fill out the necessary paperwork to transfer the funds from your old 401(k) plan to your new one.

Rolling Over to an IRA

The second option is rolling over your old 401(k) plan to an IRA. To open an IRA account, you will need to go through an investment brokerage or investment advisor.

You will choose an account type (e.g., Traditional or Roth) that best fits your financial situation and investment goals.

How to Roll Over a 401(k) to an IRA

To roll over a 401(k) to an IRA account, you will need to follow some essential steps. These are:

1) Open an IRA account: As mentioned earlier, you will need to open an individual retirement account with an investment brokerage or investment advisor.

2) Request the rollover: You will need to fill out a form requesting that your 401(k) plan be rolled over to your new IRA account. 3) Meet the deadline: There is usually a 60-day deadline to roll over your 401(k) plan from the time you leave your job.

It’s essential to follow-up with your provider to ensure the process goes smoothly and that you deposit the funds into your new IRA account on time. 4) Choose your investments: Once you have the funds in your new IRA account, you can choose which investments to make.

Getting expert advice from a financial advisor can help you make sound investment decisions that align with your financial goals.

Important 401(k) Rollover Rules

Apart from understanding the options and steps involved in rolling over a 401(k) plan, it’s essential to understand the following rules. 1) 60-day deadline: As mentioned earlier, you must ensure that you roll over your 401(k) plan to your new account within 60 days.

2) Taxes: If you choose to receive a check to cash out your 401(k) plan and then roll it over to your new account, you will have to pay taxes on the money you receive. 3) Penalty: If you’re under 59 1/2 years of age and withdraw the money from your 401(k) plan, you will be subject to a 10% penalty.

4) Eligibility: You will need to be eligible to withdraw the money from your previous 401(k) plan, or else you’ll be subject to fees and penalties. 5) Contributions: You can continue to contribute to your new employer’s 401(k) plan or your new IRA account after rolling over the funds from your older 401(k) plan.

Rolling Over a 401(k) to an IRA

Rolling over a 401(k) plan to an IRA account can provide you with more flexibility, control, and investment options. Opening an IRA account, requesting the rollover, meeting the deadline, and choosing your investments are essential steps to ensure a smooth transition.

Understanding the 401(k) rollover rules can help you avoid common mistakes that could result in penalties and unnecessary fees. Take charge of your financial future by rolling over your 401(k) plan to an IRA account today!

Rolling Over an Old 401(k) to a New 401(k)

If you are still employed and your current employer offers a 401(k) plan, it can be beneficial to consolidate your old 401(k) plan into your new one. Doing so can make it easier to manage your retirement savings and sometimes provide additional investment options that your old plan did not offer.

Opening a New 401(k) Account

If your current employer offers a 401(k) plan, you will need to contact the plan administrator to open a new account. This process can typically be done online, by phone, or in person.

To open the account, you will need to provide some personal information, such as your social security number, date of birth, and contact information. You will also need to choose a contribution percentage and an investment option or options.

Completing and Submitting the Paperwork

Once you have opened your new 401(k) account, you will need to complete some paperwork to transfer your old 401(k) plan to your new one. This process is called a “direct rollover” because the funds are transferred directly from your old plan to your new one.

You can typically get assistance from your current 401(k) plan administrator to complete the forms required to initiate the transfer. You will need to provide information such as the name and address of your previous employer, the name of the financial institution holding your old 401(k) plan funds, and the account number.

Choosing Your Investment

When you roll over your old 401(k) plan to your new one, you will also need to choose how to invest the funds. Your new plan may offer different investment options than your old plan, so it’s essential to consider all the options before making a decision.

Most 401(k) plans offer target-date funds, index funds, and actively managed funds. You should review the fees associated with each investment option to help you make an informed decision.

Important 401(k) Rollover Rules

When rolling over your 401(k) plan, you must follow specific rules to avoid penalties and fees.

60-Day Deadline

If you decide to receive a check for your old 401(k) plan funds and then deposit the amount into your new 401(k) plan, you will need to do so within 60 days to avoid taxes and penalties. If you miss the deadline, the funds will be subject to taxes at your regular income rate, and you may be subject to a 10% penalty.

Eligibility to Roll Over the Funds

If you are no longer employed, you are eligible to roll over your 401(k) plan funds to an IRA or another qualified account without penalty. However, if you are still employed, you may not be allowed to roll over the funds unless your current employer’s plan allows it.

Adding to Your IRA or 401(k)

Finally, as you roll over your old 401(k) plan into a new one or an IRA account, you should also consider contributing to your account moving forward. Making regular contributions will help your retirement savings grow over time.

If you have an IRA account, you can make contributions up to the annual limit, which is currently $6,000 per year for those under 50 and $7,000 for those 50 and over. Contributions to a traditional IRA may be tax-deductible.

Conversely, contributions to a Roth IRA are not tax-deductible, but withdrawals during retirement are tax-free. If you have a 401(k) plan, the annual contribution limit is $19,500.

The contribution limit for those over the age of 50 is $26,000 per year. Adding to your retirement savings now will help you plan for a comfortable retirement.

The more you can contribute, the more you’ll have to rely on when the time comes to retire. In conclusion, rolling over an old 401(k) plan to a new one or an IRA account is an excellent way to manage your retirement savings.

By following the rules and guidelines related to a rollover, you can effectively transfer your funds without penalty or fees. As you do so, considering contributing regularly to your new account will help you plan for a fulfilling and comfortable retirement.

In summary, rolling over an old or forgotten 401(k) plan to a new 401(k) or an individual retirement account (IRA) can help secure your retirement savings and ensure that you have access to investment options that fit your financial needs. When rolling over your account, it’s essential to meet the 60-day deadline, understand the eligibility rules, and consider making regular contributions to your new account.

By following these steps, you can take charge of your financial future and plan for a comfortable retirement. Remember, your retirement savings are vital, and taking the necessary steps to take care of them now can lead to a bright and fulfilling future.

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