Rolling over your 401(k): Avoid mistakes!

Rolling over your 401(k) is a big deal.

There are many reasons to avoid doing it – and while it is sometimes necessary, it isn’t easy.

There are many reasons why one might want to roll over their 401(k) but one major reason is changing jobs – or leaving a job.

And it can cost you money – or save you money.

If a rollover makes sense, here are some things to note.

1. Know what kind of account you want to roll it into
2. Pick where the money should go
3. Open the account and then study how to do the rollover
4. Start the rollover process

Sound confusing? It is. So, let’s start with the basics. A 401(k) rollover is when you transfer the money from one 401(k) to another – or an IRA.

So, when you decide to start a rollover, you need to pick what kind of account you are moving the money to – generally either another 401(k) or an IRA. Sometimes, you need a little help deciding and that’s OK! Rolling your 401(k) from a former plan to a current plan works. And if you want a little more control over how it is invested, moving it to an IRA is a great option.

Just don’t forget to set up an IRA account at a brokerage or bank if you choose that option! Sometimes you can move it to an existing IRA as well.

Each bank and brokerage has it’s own process for rollovers so you’ll need to make sure you follow all the steps to save yourself some headaches.

Generally speaking, a direct rollover is the best option to actually move the money. This means the money goes straight into your account without you touching it so you avoid penalties and taxes.

A complication is that not all plan providers allow direct transfers so you’ll need to figure that out beforehand.

And you have to act quickly. Once you start the rollover, you have 60 days to get it deposited into a new, qualified account or you can turn it into a taxable event – which will cost you.

Does all this sound like a lot of work? It is. You can also opt to keep your 401(k) with your previous employer – or roll it into your new job.

One thing you need to make sure you DON’T DO is to keep your rollover as cash – which can mean you miss out on making money in the market.

Do you still have questions about retirement planning options?

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If you have other questions about retirement plan loans, email us or call 937.308.0758.