Understanding the Basics of a 401(k) Rollover
The process of rolling over a 401(k) allows one to transfer his savings from one account into another without taxes and penalties if carried out according to the regulations of the Internal Revenue Service. This keeps the retirements of a person tax-advantaged and growing during this period, but to make it void of penalty, it really has to be well carried out based on options made from informed decisions.
Options for Rolling Over Your 401(k)
Following are the main options available for 401(k) rollover:
- Rollover to an IRA
One of the most popular options is rolling over your 401(k) into a traditional or Roth IRA. IRAs offer a host of investment options, including but not limited to stocks, bonds, mutual funds, and ETFs. Here is how this works:
- Traditional IRA: You can keep your 401(k) tax-deferred by rolling it over into a traditional IRA. You pay taxes only when you withdraw the money in retirement.
- Roth IRA: You can roll over your assets to a Roth IRA, and while you pay taxes up front on the amount rolled over, the money is then tax-free in retirement.
Another reason is that rolling over to an IRA consolidates accounts and thereby simplifies the management of your investments.
- Rollover to Your New Employer’s 401(k) Plan
If your new employer has a 401(k) plan, you might be able to transfer your old 401(k) into the new one. That way, you will be able to hold all your retirement savings in one account, thereby making management easier and minimizing administrative work. In addition, the new plan might offer:
- Institutional investment options.
- Loan options, if necessary.
- Simpler required minimum distribution calculations in retirement.
That means you need to compare the features and fees of your new employer’s plan to ensure it aligns with your financial goals.Â
- Leave the Money in Your Current 401(k)
Sometimes you can remain in your current 401(k) even after leaving a job. This may be advantageous if:
- The plan boasts appealingly low fees and investment options.
- You have no immediate need for the funds and prefer to let them grow.
- You are between ages 55 and 59½ and might want penalty-free withdrawals under the “Rule of 55.
However, leaving the money with a previous employer’s 401(k) will make managing the retirement savings more difficult over time.
- Cash Out Your 401(k)
You should never cash out your 401(k) unless it is absolutely necessary. Early withdrawals before age 59½ usually come with a penalty of 10% plus income taxes on the distribution. It is an option that can greatly destroy your retirement savings.
Avoid Common Mistakes in a Rollover
Following are a few tips that will ensure your 401(k) rollover is smooth and free of penalties:
- Rollovers can be taken directly: A direct rollover will transfer funds straight from one account to the other, avoiding the need to pay the obligatory 20 percent withholding tax set out under an indirect rollover.
- Avoid Procrastination: Do the rollover within 60 days to avoid taxes and penalties.
- Review the fees and investment options: Before choosing a destination for your rollover, compare the fees, investment options, and potential returns.
- Consult a financial advisor: They can help you weigh your options against each other and come out with the best options, considering your goals and circumstance.
Rolling over your 401(k) for Verizon without penalty is a great strategy to keep your retirement savings sound and growing. Do not play with your financial future. We would love to hear from you today-schedule a consultation-and M & A Wealth will support you through a seamless 401(k) rollover. Together, we can plan and secure our perfect retirements.
