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Rollover Options

What are 401(k) Rollover Options?

We live in a world where it is uncommon for an employee to spend their entire career with one company. In North Carolina, this means that you will mostly likely have more than one 401(k) plan in your life. If this describes your current situation and you are considering your 401(k) rollover options, we want to help you understand them before you make a decision you regret.

What are your 401(k) Rollover Options?

Take the Money & Run

Did you know, if you leave an employer, instead of rolling the money into another traditional 401(k), you can withdraw it? Although it might be nice to have the money now, it can hurt you in the long run. Remember, it is important to seek financial guidance if you are considering removing those funds.

Ask yourself, a few questions:

Do I need this money now? Unless you are undergoing a major home renovation, or need to pay off a large amount of debt, the immediate reward may not outweigh the possibility of not having savings down the line.

Am I going to be penalized for removing this money? Often the answer is yes, and those penalties, taxes, and fees can add up. Did you know before the age of 59 ½, you are subject to a 10% early withdrawal penalty?

If you do not wish to be penalized on your money, this may not be the best option for you. You may want to consider one of these other options.

Rollover Your Money to a Roth or Traditional IRA

Roth IRA

Did you know that contributions to a Roth IRA can grow tax-free over the course of their time in the account? This is because the money is taxed at the beginning, and not upon withdrawal.

Traditional IRA

Unlike the Roth IRA, Traditional IRAs are tax-deferred, including all contributions and earnings. This means you will be taxed at the point of withdrawal.

If you are looking at rolling over a 401(k) into an IRA, it is important to talk to a local financial professional and determine which type of account is going to work best for your needs. Not all IRAs are the same. Some carry higher fees than others. With any IRA, it is important to note, you will not be able to borrow against it like you can with some 401k, not that that is always recommended to do so.

If Available, Rollover Your Money to Your New 401(k) Plan

Often the biggest concern people have with investing in multiple 401(k) plans, is that they will lose track of their money. If your new employer’s plan allows you to rollover your former company’s 401(k), it can save you time and stress. However, make sure you consult your new Human Resource department to see if this is possible; as well as, your local Financial Advisor.

Leaving a former plan and switching to a new one may create an issue regarding your different investments. Typically, no two 401(k) plans are the same, especially when it comes to fees. If you are concerned about taxes, talk to your tax professional before making a switch.

Leave It Where It Is

Most of the time, when you leave a job, your 401(k) is the last thing on your mind. That’s okay.

Before you leave the company, consult with the Human Resource team in charge of your 401(k) plan to understand your options. There are many companies that allow you to keep your 401(k) in their plan without any additional contributions. This is a key conversation to have before departing the company. If this is still an option for you, we highly recommend it.

After you have the conversation, if it turns out you can remain in the plan with no additional contributions, you have the time to think about what makes the most sense for you.

When it comes to 401(k) rollover options, there are a lot. One option is not better or less risky than the other. It is important to consider all your options before making a final decision.

You don’t have to do it alone. If you are preparing for a career move that will alter your 401(k) arrangements, and would like to talk through your options, simply click “Find Match” and we will find the right local Financial Advisor for free. We are happy to make this transition as painless as possible for you.

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