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What Are the Different 401k Rollover Options?

Updated on May 28, 2014

Difference between a Rollover and a Transfer of a 401k Retirement Plan

You need to understand that there is a lot of difference between rolling over and transferring a 401k savings plan. A rollover of a 401k plan is the movement of funds sitting in your 401k plan to an IRA plan. A rollover involves the transfer of funds between two different types of retirement plans.

A 401k transfer refers to the movement of funds between two same types of accounts.For example, the transfer of your old 401k plan to another 401k plan with your new employer.

Rollovers may be subject to income tax if you do not meet the full requirements. Transfers are not taxable.

A 401k rollover means rolling over your 401k plan into an IRA account. There are several 401k rollover options. Also, keep in mind that a rollover IRA is not your only option when it comes to managing your 401k savings options.

Choose the right savings plan for your golden future.

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What Are My 401k Rollover Options?

You need to open an IRA account in order to move your funds from your 401k savings plan into the new IRA plan. It takes little time and work to open an IRA with a reliable and respectable IRA company or custodian.There are two types of 401k rollovers. These are:

- Rolling over your 401k plan into a traditional IRA

- Rolling over your 401k into a Roth IRA

Traditional IRA

Traditional IRA is similar to a regular 401k plan. Once you have opened a traditional IRA account, you need to fund the account before you move all your funds from your 401k plan.

Once the movement of funds is completed, you continue to contribute to the traditional IRA account. You can choose to not contribute, but that will not be beneficial for you. Your contributions are not taxed until you withdraw the money. An IRA account gives you access to different options to diversify your assets. One of the best options is to converting the 401k to a gold IRA.

Roth IRA

A Roth IRA is not tax deductible. You can withdraw funds anytime without paying tax or penalties on it. However, if you withdraw the money within 5 years of opening the account, the interest you earned on it will be taxable.

In order to roll over to a Roth IRA, you need to pay taxes on the 401k funds. Your after-tax funds will continue to grow as tax free when you move them into your Roth IRA account.

The benefit of rolling over your 401k into a Roth IRA is that your future earnings and distributions are tax free if your contributions have grown with post-tax funds.

Knowledge Is Power and Money

Final Words

It is a difficult and confusing situation for many people when it comes to choosing the right option involving their 401k rollover options. Transferring your old 401k plan into a new 401k plan is not a rollover option, It means transferring your 401k plan into a new 401k plan and both plans are of similar types. But, rolling over your 401k plan into a traditional or Roth IRA account is what you call a rollover. If your old 401k plan allows you to enjoy low fees, easy funding options, and have easy access to funds, keeping it might be the right option. If your new 401k offers some really great features then transferring your old 401k plan into the new 401k may be good for you. If you want to access to a wide range of investment tools and if you do not want to work again, then rolling over your 401k into an IRA could be the best option for you.

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