401k Plans, 401k Rollovers, & Self-Directed
IRA’s
(Transferring your 401k from your previous employer into a
Rollover
IRA )
What is a 401k Rollover?
A 401k rollover occurs when you change jobs or retire and then
elect to transfer or “rollover 
The assets in your 401k can be transferred from your 401k directly
to an IRA via a trustee-to-trustee transfer. A direct rollover from
a 401k to an IRA is made
tax -free and there is no tax liability. There is no
limitation on the dollar amount you can rollover from your previous
employer’s retirement plan.
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When I change jobs or retire, what are my options for my
401k?
When you leave your employer, you will need to decide what do to
with the money you have accumulated in your employer’s 401k.
For some
investors this may represent a sizeable
investment . As a result, it is crucial to make an
informed decision.
There are several options available to you:
1. Take the money out in Cash
For most investors this is the worst option. Taking a distribution
in
cash has very serious tax consequences. Your previous
employer is required to withhold 20% for federal taxes. The cash
that you receive will be taxed as ordinary income. The 20% that is
withheld will be used to pay the taxes you owe for your
federal
taxes . However, depending on your tax bracket you may
owe more than the 20% that was withheld when you do your taxes for
that year. In addition, you are likely to be penalized 10% if you
are younger than age 59 1/2. As you can see, this can be a major
setback towards saving for your retirement.
2. Leave the money with your old employer’s
retirement plan
For many investors who are saving for their
retirement , this may be a better decision than Option 1
since you will not be penalized or taxed, however there are some
disadvantages. Many investors find it difficult to manage and
organize their retirement accounts when they have several
retirement plans at previous employers. As a result, investment
performance can suffer if
retirement
accounts are not diversified properly. An even more
important issue is most employer’s retirement plans have a
fairly limited number of mutual funds choices (usually only
10-15).
3. Transfer the money into your new employer’s
retirement plan
Most employers allow you to do a transfer into their retirement
plan. Compared to Option 2 this avoids the potential problem of
multiple retirement accounts at different employers and the
difficulties of managing your investments and organizing them
properly. As in Option 2 the same important issue still applies, as
most employer sponsored retirement plans have a fairly limited
number of mutual fund choices (usually 10-15).
4. Transfer the money into a Rollover IRA
For many investors a 401k rollover into an IRA is the best option
for the money they have saved in their previous employer’s
retirement plan. Compared to Options 1-3 you have several
advantages: increased control, greater organization, improved
investment flexibility and
investment
advice .
Retirement Plan Rollovers: 401k,
403b , 457
(401k rollover, 403b rollover, 457 rollover)
If you have a 401k, 403b, 457 or some other retirement plan with a previous employer, you should strongly consider the benefits of transferring your retirement assets into a Rollover IRA.
The Rollover IRA is a tax advantaged
IRA
account designed to receive retirement funds rolled over
from an ex-employer’s retirement plan (401k rollover, 403b
rollover, 457 rollover). The Rollover IRA allows funds to be
transferred
tax
free and penalty free from other retirement plans and
allows
retirement
funds
When leaving an employer, some investors believe it is advantageous
to rollover your retirement plan into a new IRA versus leaving
your
money in your old employer’s retirement plan or
transferring it into your new employer’s plan.
Advantages of a 401k Rollover, 403b Rollover and 457 Rollover to an
IRA
1. Control
When the rollover process is complete, your retirement plan assets
from your previous employer will be transferred to an IRA. Since
you are the owner of an IRA, you have complete control versus being
dependent upon the rules and policies of your former
employer’s retirement plan. By rolling over your account into
an IRA will not have the potential problems seen with some 401k,
403b and 457 plans such as untimely statements, lack of account
information, or more importantly, a limited number of
investment
options . Also, there are a number of other problems
that can arise with your retirement plan should your employer have
financial
troubles and go into
bankruptcy . Rolling over your retirement plan to an IRA
eliminates these problems and puts you in a position to be in
complete control of your retirement account.
2. Investment Flexibility
Your previous employer’s 401k, 403b or 457 plan probably had
between 10-15
mutual
funds to choose from. A rollover to an IRA will increase
your investment options and will improve your investment
flexibility. Within an IRA managed by an advisor you can
invest in stocks,
bonds and over 10,000 mutual funds. We believe that over
the long term greater investment flexibility may lead to improved
performance through better diversification and increased investment
selection.
3. Investment Advice
Are you receiving guidance from a
financial
professional with selecting the appropriate investments
in your 401k, 403b or 457? Probably not. This is perhaps the
greatest advantage of a rollover to an IRA. If you opened an
IRA
rollover account, an advisor would help you select a
diversified
investment
portfolio based on your age, time horizon and risk
tolerance.
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Please visit our site for more Retirement, 401k, and
Insurance
information :
www.erollover.com
