401(k) Rollovers generally occur when one is leaving a job or retiring, but depending on the plan, there might be other opportunities for rolling over your retirement fund. A 401(k) rollover involves a direct fund transfer from an employer-sponsored plan to an IRA account. If you don't want to incur unnecessary taxes and fines, you have 60 days to carry on your transactions. Having an advisor from Delphi Wealth Management can help you to navigate the decisions and processes involved.
401(k)s are tax-advantaged retirement plans and are offered to employees through their employers. If you retire or leave the job for whatever reason, you need to know what to do with your account. You have several options, including:
Rolling over your 401(k) to an IRA or a new 401(k) retirement plan should not have tax consequences, but this isn't the case when rolling over to a Roth IRA. A 401(k) rollover to an IRA offers you an opportunity to select an appropriate brokerage for your funds. It could make sense if:
When making any of the above decisions, ensure you understand each option. They all come with different pros and cons. If you aren't sure of what you need to do, consult a qualified financial professional to help you avoid common mistakes.
Once you leave your job, your employer can pay your 401(k) retirement plan directly to your new IRA account. You can also ask for a check and deposit it to the other account. After receiving the distribution, you have up to 60 days to roll over the funds.
However, the IRS may consider particular situations and wave the 60-day rollover requirements. For example, this could happen if you didn't roll over due to a situation outside of your control such as disability, hospitalization, incarceration, serious illness, death, restrictions imposed by a foreign country, or postal error.
A Roth conversion involves moving your asset into a Roth IRA. The transfer can come from a defined-contribution plan like a 401(k), SIMPLE IRA, or simplified employee pension (SEP). A Roth IRA conversion allows you to withdraw your money, tax-free in the future. However, you'll incur income tax for the converted money.
If you believe your tax bracket will be higher in the future than today, this strategy might be the best for you.
A 401(k) is moving your money from your 401(k) account to another (Tax-advantaged) retirement account. For example, it could be another 401(k) account or an Individual retirement account (IRA). In most cases, this occurs when you acquire a different job with a new retirement plan in place.
If you're like most people, you want to roll over your 401(k) into an IRA. When you do this, you will have to pay income taxes when you file for that year, but you won’t be taxed for that money in the future.
An IRA offers you more investment opportunities than a 401(k). For example, your 401(k) retirement plan may only provide mutual funds from a specific provider. However, an IRA account offers you a broad range of investment choices. These could include exchange-traded funds (ETFs), bonds, individual stocks, and mutual funds.
A 401(k) rollover doesn't require fee transfer when moving to a new tax-advantaged plan. The new account fees may be more than the old ones. If you're looking to reduce charges, the best option is to roll over the 401(k) plan to an IRA.
Your former employer can wire the funds to your new IRA, or they can offer you a check to deposit. Ensure you deposit your funds within 60 days of receiving the distribution to avoid fines and taxes.
A 401(k) rollover can be rewarding if you get everything right throughout the process. If you're looking to avoid common pitfalls, don't hesitate to consult an experienced financial professional to help you navigate the process. Here at Delphi Wealth Management, we want you to save, grow and enjoy your hard-earned money. We can help you navigate this process.