401K Rollover Rules | Home Finance Help

Knowing the 401K rollover rules will make the transition process a lot easier.

For young investors, a rollover will be needed when you change jobs. It doesn?t matter if you?re fired or quit, the money you have invested is still yours. However, if quitting, always check your current plans 401K vesting policy first because not all employer matches are 100% vested.

The objective of this page is to make sure that you have 100% percent of the money you?re entitled to rolled over with no income tax effects.

401K Rollover Options

• You can rollover to a new 401K plan. This is a great option, but only works if you have a job in place before you leave.
• Rollover your 401K into an IRA. The best option if done correctly because the $5,000 contribution limit doesn?t apply to rollovers. Also, the money is still being used to save for retirement. Plus, you get to choose the investment company.
• You can leave your investments with your old employer. First, check and make sure your old employer will allow it. However, if your old employer charges maintenance fees for providing documents, HR Resources, etc?this is not worth it.
• Last and by far the least, you can cash out. There are no positives to cashing out because the money has a 10% early withdrawal penalty and is included in your taxable income for the year.

For a successful rollover to occur follow these general guidelines.

• Always set up your new account before you withdrawal. If money is withdrawn for more than 60 days the IRS will believe you cashed out. The withdrawn amount will be included in your taxable income with a 10% penalty.
• Do it yourself to avoid the small percentage a broker might take out. This percentage will add up over time.
• The check should be made out to your new company or your new investment institution, not to yourself.
• NEVER CASH OUT

The most preferred option is to rollover your 401K into a Traditional IRA. Here are the steps you should take:

• Open up a Traditional IRA at a low cost provider
• Fill out the paperwork with your old employer, and provide them with your new account information
• Be patient, the process can take up to three weeks

Knowing the 401K rollover rules is important. If 401K?s couldn?t be converted easily, then nobody would invest in them.

401K?s are for your retirement purposes only. If it?s kept that way, then you will continue to receive tax advantages from the IRS.

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Source: http://www.thehumblemumble.com/401k-rollover-rules/

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