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Rollover My 401k

Updated on June 2, 2010

Why Should I Rollover my 401k?

After you’ve decided to work for another company, you may be one of those people asking: what are the practical and useful steps that I should take and why should I rollover my 401k plan? First, make sure you are aware of the 401k rollover rules and when you are changing an employer, you have four options to look at:

1. First, you can cash out all the funds you’ve contributed. But, it’s not as exciting as it sounds, because you will have to pay taxes and ten percent penalty fee, that’s why this option is not the wisest decision to make. The fallback of cashing out your retirement savings is more detrimental than the penalties and taxes alone; undeniably, the huge financial failure comes from the many years of tax-deferred compounding of your capital – meaning the earnings of your retirement account may have provided you a wealthy retirement if you have preferred a 401 rollover instead. Make sure you are investing for retirement correctly.

2. The second option some people choose is to leave their contributed funds in their previous qualified employer sponsored 401k plan. Keep in mind that even if you are not with their company anymore, their 401k account administrators will still charge you several fees on keeping and managing your account.

Additionally, though the IRS does not impose a limit on the number of retirement plans you can have, if you want to manage your retirement savings plan directly, it is better to have them in one place. You can also take advantage of a 401k loan.

Why should I rollover my 401k?

Now, it’s time to look at the two remaining options, which will answer your query: why should I rollover my 401k?

3. You may consider carrying out a 401k rollover to your new company sponsored 401k plan. Basically, this rollover option will only become available if you already knew before leaving your current employer that your new company can offer you a 401k plan. You should only go for this option if you are truly satisfied with the rates of return of your 401k account. However, if you want to obtain more than the mediocre growth that your current 401k plan grants you, take a close look at the next option, which may be the most efficient retirement plan for you.

4. The last option that you may perform is to rollover your 401k to IRA or Individual Retirement Account. Making a 401k IRA rollover is viewed by financial experts as the best step to take for people who are concerned in saving for a comfortable retirement, because this option permits the investor’s capital to continuously incur tax deferred growth. Moreover, choosing this option will also give the investors full control over their assets and investments.

How do I rollover my 401k to IRA?

Your next question may be; how do I rollover my 401k to IRA? 

Well, the process starts by contacting your custodian or custodial company. All of your current 401k assets then will be ordered for liquidation and at the same time reported to the IRS via Form 1099-R. Once a check is issued to you, you will then be given 60 days to redeposit the funds to your new custodial company. This transaction is again reported to the IRS through IRS Form 5498. Remember, you are only authorized to make a 401k rollover once every year. 

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    • profile image

      Tom Daniel 

      8 years ago

      I can help you with your 401K Rollover. Contact me at thomas.daniel@dantova.com and visit us www.dantova.com

      Thank you

      Tom

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