401(k) Rollover

A 401(k) is a government-supported savings plan that is tax-deferred to offer people additional retirement funding options aside from the standard Social Security Pension.

The 401(k) plan allows you to accumulate savings until you leave your job or retire. The fact that the plan is tax-deferred means that savings will accumulate faster.

After leaving a job, you can roll the money over to other investments. As easy as that might sound, moving the money around in a 401(k) rollover isn't easy.

Here are your options with the 401(k) rollover and the pros and cons for each.

Those moving on to a new job often don't know which employer's plan works best for them. If you are in such uncertainty, you may decide to leave your 401(k) savings in your former employer’s plan. This move is temporary until you figure out suitable investment options and gather details of the new employer's plan.

Pros

• Your 401(k) savings are protected from creditors' claims under federal law.
• You have time to compare which 401(k) plan offers the most reasonable investment fees.
• You can access distribution plans and loans that might not be available with a new 401(k).
• The 401(k) earnings remain tax-deferred until you withdraw them.

Cons

• Managing multiple 401(k) plans can add complexity.
• Investment opportunities might be limited and unfavorable.
• If your new employer offers high 401(k) fees, it can be a costly switch.
  

Another option for a 401(k) rollover is to switch to a traditional IRA. This option is perfect for people going into early retirement or aging out of an employer-sponsored plan.

Pros

• IRA rollovers simplify 401(k) management since they consolidate several retirement accounts.
• It helps you maintain maximum control over investment decisions, offering opportunities that were unavailable with the employer's 401(k) plan.
• Your savings get the chance to grow while still tax-deferred.

Cons

• You can't borrow against an IRA.
• IRA rollovers often require maintenance fees periodically.
• Your earnings are not protected from creditors unless you file for bankruptcy.

You could also transfer your old 401(k) to your new 401(k) if the new employer accepts the rollover.

Pros

• Managing your investments will be easier since you have a single 401(k) plan.
• Your investments get the chance to grow tax-deferred.
• The investments are protected from creditors.

Cons

• Some employers accept rollovers but introduce higher fees which can eat into your savings.

Withdrawing all the money from the account is also a move you can make when all other options aren't favorable. You should use this option as a last resort since cashing out can be quite costly in the long term.

Pros

• You get cash at hand to handle immediate needs.

Cons

• Cash withdrawals are taxable
• You lose the chance to grow your savings tax-deferred.

Retirement planning can be quite complex, especially if you have to consider a 401(k) rollover. You need correct financial advice to ensure compliance with 401(k) rollover rules and tax laws. Hiring a financial advisor ensures you get the most from your money.

Aveo Capital is your trusted team of experienced financial advisors, bringing you peace of mind. Our team has extensive experience in the wealth management industry, perfect for helping with retirement planning. Contact Us today to learn more.

What is a 401k rollover?

A 401(k) rollover involves moving your funds from one retirement plan to another. You can move your assets from your old 401(k) plan to your new employer's 401(k) or into a traditional IRA.

What happens if I don't rollover my 401k?

Missing the 60-day rollover deadline will expose your 401(k) to financial penalties. However, the account continues earning interest until all of the money is gone.

How long do you have to rollover a 401k after leaving a job?

A period of sixty days is offered under federal law to complete a rollover after leaving a job.

Can I move my 401k to an IRA without penalty?

Yes! There is no financial penalty for a 401(k) to IRA rollover.