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A 401(k) rollover is the term used to describe the transfer of funds from an existing 401(k) retirement account with an employer to either an individual retirement account (IRA) or another 401(k) plan. To help ensure that you are making the wisest and most appropriate decision for you and your family, it is important to seek the advice of a financial advisor.
Strategic rollover and retirement plan guidance of Johanson & Yau is available to clients having a minimum retirement account balance of $500,000.
401(k) Rollover to IRA
You may have the opportunity for greater investment choices and potentially lower fees when you own an IRA rather than having your retirement funds in a 401(k) plan. Typical 401(k) plans limit the number of investment choices offered through the company plan. On the other hand, a wide variety of stocks, bonds, ETFs, mutual funds, certificates of deposit and other investments can be held in an IRA.
Maintain, Move or Cash Out
In some situations, you may choose to maintain your existing 401(k) at your former employer. Keep in mind that you will not be able to add to an old plan, and you will need to remember to keep track of the old account.
Moving your old 401(k) to a current employer plan could be appropriate.
Cashing out your 401(k) is another option. Any distributions taken may be subject to taxes at ordinary income rates and may be subject to a 10% penalty if taken before age 59 ½.
If your plan account includes employer stock, additional considerations apply that you will want to discuss with your advisor. Rolling over employer stock may have tax ramifications that could be avoided if you retain it in the existing account.
401(k) Rollover Rules to Remember
Specifics of your situation will determine the exact rules that apply, based on factors like the kind of 401(k) you have and the type of account you want to roll it into. Taxes and fees will vary, along with other potential consequences. Your advisor will know the pros and cons of each part of the decision process and be able to help you navigate this transition and avoid unexpected tax burdens.