How to Roll Over 401(k) When Changing Jobs

Every time you change jobs, it’s important to make wise decisions about what to do with the funds in your 401(k) plan. Of course, it’s possible to leave your money in a former employer’s 401(k) retirement plan, you also have the opportunity to transfer your savings to a personal retirement account or a different 401(k) plan. Keep reading to discover unique strategies for rolling over your retirement savings when changing your job. Plus these strategies will help you avoid penalties as well as fees when moving from 401(k) to IRA.

Consider Maintaining Tax Benefits

By rolling your account over an IRA, you can effectively maintain the tax benefits associated with your 401(k) plan. And if the plan allows, you may also want to consider transferring your savings to another employer’s 401(k) account. But don’t rush into making such a decision. You can always take your time to find another tax-deferred account that offers the investment options you want at an affordable price.

Look For Investment Options with Better Rewards

Most 401(k) plans usually come with limited investment options, commonly chosen by the employer, a consultant, or a plan sponsor. While there are those plans that offer better options for participants, others are riddled with overpriced funds as well as unnecessary fees. For instance, IRAs have a wider selection of investment plans. So, take the time to look for investment options that are more beneficial to your retirement portfolio. Remember, a job change usually presents an excellent opportunity for you to move your money into other funds with lower fees.

Look For Ways of Keeping Costs Low

Retirement accounts often charge various administrative as well as maintenance fees. Each individual program charges an expense ratio to keep the fund running and perhaps other costs.

Nonetheless, it’s always advisable to choose a low-cost fund for your retirement savings since you’re investing over a lengthy period of time. Paying lower fees will make it possible for you to keep most of your investment returns.

Do a Direct Transfer of Your Money

You can always avoid taxes plus penalties by having your account balance transferred directly transferred to your retirement account through a trustee-to-trustee transfer. When a check payment is made to you, about 20 percent will be withdrawn for income tax. In addition, a ten percent early withdrawal penalty might be applied if you’re below the age of 55.

Take Note of Vesting Schedules

Before being vested in the retirement plan, you won’t be able to make contributions to your 401(k) account. Some 401(k) plans offer immediate vesting, whilst others don’t. Instead, they’ll need you to stay at the job for about five to six years before they can allow you to keep your company contributions.

401(k) plans typically have a limited menu of funds that are often chosen by an employer, a consultant, or a sponsor. Whereas certain 401(k) plans offer excellent investment options for their participants, others are riddled with overpriced funds as well as unnecessary fees.

Generally speaking, IRAs have a greater selection of investment options. So, take the time to look for investments that are more beneficial to your retirement portfolio.

The Bottom-Line

Use the above tips to rollover 401k to IRA when changing jobs. They have been sampled by expert’s are highly practical. They will also help you avoid penalties as well as fees.

Advertisements

Author: Chakraborty

Dr Chakrabarty is the Chief Innovation Officer of IntuiComp TeraScience. Earlier she was Assistant Professor of Delhi University, a QS ranked university in India. Before that she has held research positions in IIT Mumbai, IIT Chennai and IISc Bangalore. She holds 2 patents and over 20 research publications in her name which are highly cited. Her area of research is in smart technologies, integrated devices and communications. She also has a penchant for blogging and is an editor of Business Fundas.