Rolling Over a 401(k) the Right Way

If you're changing jobs, you may wonder what to do with your 401(k). While it may be tempting to cash out, that's usually not the best idea. In this blog post, we'll explain how to roll over your 401(k), so you can keep growing your nest egg.

Before you roll over your 401(k), however, you need to decide if you want to. You may decide to leave your investments instead of rolling them over. Most companies will let you keep your retirement savings in the company plan even if you leave the company. But why would you want to leave it there instead of withdrawing it or rolling it over? Let’s take a closer look.

Keeping your 401(k) in your previous company’s plan

Pros:

- Your money can continue to grow tax-deferred

- If you leave your job at age 55 or older you can take penalty

- Free withdrawals

- You may get commercial prices on investment options

- Broad protection against creditors

Cons:

- You won't be able to contribute more money to the account

- In most cases you cannot take a 401(k) loan

- Withdrawal options may be limited

- After you reach age 72, you'll have to take annual required minimum distributions (RMDs)

Keep in mind:If you have less than $5,000 in the plan, the money may be automatically sent to you (or sent to an IRA for you)

Rolling over your 401(k) into a new employer's plan

Some companies allow you to roll your old retirement savings into their plan when you join their company as a new employee. This isn’t always possible, but it could be a good option.

Pros:

- You can contribute more to your retirement savings and get tax

-deferred growth

- There are no tax consequences as long as the transfer is done directly from one plan administrator to another

- Your new plan could offer better contribution benefits

- It’s easier to manage a single 401(k) account

- Broad protection against creditors

Cons:

- It will take work to get familiarized with the new plan’s options and rules

- There is some paperwork involved

Rolling your 401(k) into an IRA

You can roll over your account into a traditional IRA or a Roth IRA through a financial institution. You’ll want to research fees and expenses when choosing an IRA provider.

Things to consider with Traditional IRA:

If you're rolling over into a traditional IRA, you'll need to make sure the money is deposited into the account within 60 days. If it's not, the money will be considered a distribution and you'll be subject to taxes and penalties. With a traditional 401(k), you contribute pre-tax dollars and pay taxes on withdrawals in retirement.

Things to consider with Roth IRA:

With a Roth IRA, there are no time restrictions on when the money must be deposited. However, if you're not careful, you could pay taxes on the conversion. With a Roth 401(k), you contribute post-tax dollars and don't have to pay taxes on withdrawals in retirement. Rolling over your 401(k) doesn't have to be complicated—as long as you take the time to do it right.

Reach out to our team and we’ll help you and your clients understand what their options are for rolling over a 401(k).

This information is provided as general guidance and may be affected by changes in law or regulation. It is not intended as accounting or legal advice. If you have questions please reach out to our team.