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401(k) Rollover in Glens Falls, NY ⏐ Cooney Financial

Cooney Financial Advisors, INC.

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401(k) Rollover

A 401(k) rollover is a transfer of funds from a 401(k) to an individual retirement account (IRA) or another 401(k). Generally, money must be deposited into the new account within 60 days of being removed from the old account. If you leave a job with a company-sponsored 401(k), you will have to decide what to do with the money in the account. There may be numerous options available to you, including a rollover to a new employer’s plan or an individual retirement account.

IRA Rollover

A 401(k) rollover to an IRA has some significant benefits. Benefits of a rollover 401(k) to an IRA include having more diverse investment selections than a standard 401(k) plan and potentially lower account fees. Many IRAs do not charge any account fees. A 401(k) rollover to IRA is broken down into four steps, choose which kind of IRA account to open, open your new IRA account, ask your 401(k) plan for a direct rollover, or follow the 60-day rule and choose your investments. A financial advisor will help decide where to allocate funds and which type of account will work best for you and your individual needs. A Roth IRA rollover will be taxed upon completion. A traditional IRA rollover is tax-deferred. However, if you do a rollover from a Roth 401(k) to a Roth IRA, you will not incur additional taxes.

401(k) Rollover Rules

401(k) rollover rules vary based on your situation. For example, the kind of 401(k) and type of account you are looking to roll over your 401(k) into will make a difference in the amount of taxes you may need to pay, fees you may incur as well as any other consequences. This is why it is essential to get a financial advisor involved in your 401(k) rollover. A financial advisor will know the ins and outs of 401(k) rollover rules and be able to guide you to make the best decision for you and your unique situation and to avoid a potentially unexpected tax burden. Some things to keep in mind as you navigate a 401(k) rollover:

  • A traditional 401(k) is funded with pre-tax income. You will owe taxes on these funds once you begin withdrawing them, usually at retirement.
  • A Roth IRA is funded with post-tax dollars, so you pay taxes upfront before the money is deposited into your account. If you roll over a traditional 401(k) to a Roth IRA, you will owe taxes in that tax year, but you will not owe taxes when these funds are withdrawn at retirement.
  • An immediate tax burden may be avoidable by dispersing after-tax funds to a Roth IRA and pre-tax funds to a traditional IRA.
  • Every year, the IRS reviews and sometimes makes adjustments to the maximum contribution limits for 401(k) plans, individual retirement accounts (IRAs), as well as other kinds of retirement savings accounts.
  • Individuals age 50 or over may be eligible to make “catch-up” contributions in excess of the annual limits.

Key Takeaways

The bottom line to remember is that there are a few things one must consider when deciding whether or not a 401(k) rollover is right for them, fees, the range/quality of investments in your 401(k) versus an IRA, and the rules of the 401(k). Remember that you must take action as inaction can cause unnecessary fees. If you are unsure, confused, or even overwhelmed by the many options available to you, make sure you call a financial advisor right away. Utilizing your financial advisor will alleviate any stress or concerns you might have and open you up to information that you may not have access to.