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401k Rollover to IRA

Updated on July 22, 2010

401k Rollover to IRA - Know the Benefits

If you are accepted in a new company you have few options to choose from in relation to your 401k retirement plan. Some prefer to leave their contributed funds active with the company sponsored account while others choose to immediately cash out their contributed funds to put their money in other investment vehicles. Well, you should cross out the above options and instead carry out a 401k rollover to IRA.

Although, many 401k contributors deem that cashing their money out of their 401k account is the best step to take because of the instant advantages of a lump sum extra cash, in real fact the financial penalties that they will incur are not worth the immediate benefits. Early withdrawals or distributions are automatically subject to ten percent penalty plus taxes that will be taken from their account. This means that a $100,000 early withdrawal will be directly paid at $70,000 only. Learn more of the 401k rollover rules.

401k Rollover to IRA Advantages

Rather than purchasing a new house or trying to invest in other stuff, the most purposeful thing to do is to make a 401k rollover to IRA. This will permit your contributed funds to earn tax free interests and capital gains. The reason why you should not keep your existing 401k retirement plan is to steer clear of confusion in your investment portfolio. It is best that you have all your retirement savings in one place to establish stability and strength of your investments. If your retirement account is consolidated, you can manage your assets very well.

To reap the full advantages of a 401k rollover, you must find a financial company that meets all of your requirements. You should perform your own research about their reputation and operation prior to investing with them. Additionally, you should have a custodian or agent that can help you to better understand the intricacies of investing as well as guide you appropriately in managing your business portfolio. You can utilize the internet in finding the institutions that can be your partner in efficiently preparing for your retirement years.

401k to IRA

When you rollover your 401k to IRA, you should decide if you want to save a tax free or tax deferred funds. Check the different types of Individual Retirement Accounts, so you will identify what kind of IRA meets your needs (see Roth vs Traditional IRA for more information). You should check the Internal Revenue Service website to see all of the options available for you. Moreover, you must learn about the limits set in IRAs; these are the income limits and contribution limits. You should also study the rules and regulations of the IRS about making withdrawals or distributions. This will help you prevent possible tax penalties because of poor investment decisions.

The most convenient way to transfer your funds from 401k to IRA is through direct rollovers. In this 401k IRA rollover approach, you will be asked by your previous 401k account officer to fill out several forms. You will have to put the distributed amount and some information of your new retirement account where your funds will be transferred. A direct 401k rollover to IRA is considered as the most secure way to transfer your money from one financial institution to another.

Rollover 401k to IRA


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