Are you happy with your retirement plan?
If your retirement plan isn’t getting the return you thought it would then it might be time to roll it over. A rollover occurs when a withdrawal of cash or assets is made from one eligible retirement plan and placed in another.
This practice could be advantageous and end up earning more savings. If a rollover is something you think you’d be interested in, continue reading below where we’ve outlined the top five things to know about rolling over a retirement account.
1. Options for Rollovers
If you decide to leave an employer that you have a 401(k) with there are several options for what you can do with the account. The first option is that you can roll over the 401(k) into an individual retirement account (IRA). The second option is to roll it over to a new employer’s 401(k) and the third option is to cash it out.
2. Direct Vs. Indirect Rollover Rules
There are essentially two ways to roll over an account. The first is known as a direct rollover. With a direct rollover, the funds will be transferred directly from the 401(k) into another eligible retirement account.
With an indirect rollover, the funds can be withdrawn and deposited (tax and penalty-free) into another account so long as it’s within 60 days from the date of your withdrawal.
3. Rolling into an IRA
Transferring funds from a traditional 401(k) to an IRA is actually fairly simple. All that needs to be done is to contact the plan administrator of the 401(k) and have them wire the funds directly to the trustee of the IRA. If you do not want to do a wire transfer, the transition can also be made by check. However, the funds will need to be deposited into the new IRA within 60 days. Otherwise, the transfer will not be considered a direct rollover and you will be subject to taxes and an early withdrawal penalty.
When it comes to rolling over a 401(k) to a Roth IRA, the transition is not as straightforward. Since a Roth IRA is an after-tax account, there will be taxes incurred at the time of the rollover. Despite this, it is important to note that the distributions taken in retirement with a Roth IRA are tax-free. This type of account is preferred for high-income earners as there are no income limitations to contributions.
4. Rolling into A New Employer
Rolling a 401(k) into a new employer’s 401(k) is simple. All that needs to be done is to arrange for a direct transfer of funds or to do an indirect transfer to the new account. If you choose to do an indirect transfer just be sure to complete it within 60 days to avoid paying tax and penalty fees
5. Exceptions
There are certain exceptions to rolling over parts of your 401(k). Generally, all or part of any 401(k) is eligible to be rolled over besides hardship distributions, substantially equal payment distributions, distributions used to pay for medical or life insurance, dividends on employer securities, S corporation allocations, excess contribution distributions, and loans.
Ultimately, regardless of what your retirement goals are, you will want to have a secure retirement plan.
If you’re thinking of rolling over your current account and would like to know what options are best for you give us a call at 407-328-5001.
Otherwise, failing to act and educate yourself on your retirement can leave you in financial trouble in the future.
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