Throughout your working years you will most likely utilize several employer 401(k) Plans. You may change employers several times over the years, and will hopefully leave the workforce at the end of your working years to enjoy retirement. So, what do you do with your old 401(k) account? One option available to you is a 401(k) Rollover. 401(k) rollover means moving your funds into a different retirement account. The transfer happens when you shift from one employer to another or transition to retirement.
If you are thinking of what to do with your old 401(k), you should thoroughly understand the choices available to you. There are four options available, and each has different tax implications. That is why it is important to work with a financial professional to understand penalties, taxes, and 401(k) rollover rules to comply with. Working with an experienced financial advisor can help you make the right decision.
1. Leave your 401(k) with your former employer
If your former employer allows it, you can leave your 401(k) funds where they are. One benefit of this option is that you will have time to evaluate your new employer's investment plans in case of a job change.
Also, under this option, any earnings remain tax-deferred until when withdrawing. On the downside, it may be hectic managing multiple plans, and your range of investment options may be limited.
2. Roll over the cash into an IRA
To continue enjoying the tax advantages status of a 401(k) account and get more retirement investment options, you may choose to rollover your 401(k) to an IRA. If this option is your choice, ensure that your rollover is completed within 60 days. 401(k) rollover to an IRA has three options which include:
3. Rolling over into a new employer's plan
If you are moving from one company to another, you may want to transfer money from your old 401(k) to your new employer's 401(k) plan for easy management and taking control of your assets. The plan administrator from your former job can help you roll over from one 401(k) to another.
4. Cashing out if necessary
Cashing out your old 401(k) is another option, but it comes at a cost. Don't just withdraw your money from the account unless it's necessary. Any withdrawn cash is taxable. Also, 20% may be withheld for the federal holding rate. The IRS may classify this as an early distribution and incur a 10% penalty.
It's not easy to go through the 401(k) rollover process alone. In most cases, when setting up 401(k) plans, many employees may find themselves overwhelmed. A good 401(k) advisor will educate the participants on the best options to take. Also, they will answer questions you have regarding the plan. For instance, you may ask, "I left my job. What will happen to my 401(k) account?”
Your financial advisor may recommend that you complete an IRA rollover if you left your job and have not yet found another. You can also ask for more information about your retirement plan when moving from one company to another.
At WV Wealth Management Solutions, we understand that retirement is a major milestone in one's life. We will work with you for hassle-free investing and ensure a reduction of stress and anxiety associated with retirement.
Your ideal amount to set aside is dependent on several factors and may change as your circumstances change throughout your life. However, the standard rate you should save is 10% to 15% of your annual income. A 401(k) advisor will assess your needs and opportunities and advise you on the appropriate amount to save.
This depends on how much you have saved and what your needs are. If the amount you have in your account is enough to support your lifestyle, then you can live on your 401(k). The best strategy is to work with an experienced financial advisor to determine the right plan and retirement strategy that fits your needs.
Regarding 401(k) asset allocation, these accounts are allocated as solid assets and are subject to early withdrawal fees and taxes. These assets become liquid when you reach 59 1/2 years and are subject to tax deductions
What is a 401k rollover?
401k rollover is when a person transfers funds from an existing retirement account to a new plan or IRA.
What happens if I don't roll over my 401k?
If you don't roll over your 401k from your previous employer in time, the funds will be subject to income tax and a 10% early withdrawal penalty.
How long do you have to roll over a 401k after leaving a job?
You should complete the rollover within sixty (60) days.
Can I move my 401k to an IRA without penalty?
There is no penalty for rolling over your 401k to IRA. However, make sure you complete the process within 60days.
Navigating the 401k process does not need to be stressful. You only need to work with a qualified and experienced financial advisor. Contact WV Wealth Management Solutions and learn more about 401(k) rollover.