Explore the 401K rollover options

With the government’s introduction of tax-advantaged retirement accounts to encourage its citizen’s investments in retirement savings plans, a significant result of the country’s population remains keen to explore the opportunities offered. Companies and individuals alike are exploring options to profit for themselves and their associates. If you’re an employee for an organization that provided you the 401K employer-sponsored retirement plan and you intend to change your company or switch jobs- then one of the critical decisions that you need to take is, what to do with your existing 401K account. In this case, you’ll want to contemplate and analyze some essential concerns and factors that could affect your retirement plan for the golden years.

When you’ve decided to switch the current organization, there are four options on what you can do with the existing 401K plan. Firstly, you can leave the savings account as it is with the previous organization. The second option for you is to transfer the entire statement into your current employer plan. Third, you can move over your 401K plan’s funds from the previous organization, transforming into a new IRA account. And the last option is to cash out your savings from the former employer’s account.

Several options will determine your choice on the rollover options. Although unprecedented incidents or events might demand early withdrawal, it is prudent to keep your savings funded and not withdrawn. Critical factors in choosing the fittest option for your 401K account rollover are the type of investments each option offers, the fee structure involved with each option, and the obligation to utilize the money from your savings account.

Key factors to consider

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Leaving the money with previous organization

Your savings will continue to be exempt from taxes if you opt with this option. If you’re leaving your previous organization before you’re fifty-nine and a half years old, but after you’ve turned fifty-five years old, you can think of choosing this rollover option. According to IRS’s ‘Rule of 55’, if you fit the higher age group, you have an opportunity to withdraw the amount from your 401K plan, penalty-free without stipulating reasons. The activities will still have income-tax inclusion. You can consult your previous employer for other conditions and terms like extra fees or restrictions involved with the 401K account rollover option.

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Rollover to a new 401K plan

Rolling over the previous employer’s 401K account into the new organization’s 401K plan is the rational approach to manage your savings in one place easily. You can settle on this option based on investment choices and access to your savings amount. With the new company, you’ll be offered different options in investment opportunities and alternatives when compared to your previous employer. 401K plans have specific investment options determined by the plan administrator. Some programs even enable you to take a loan of up to $50,000 from your current account, providing you about five years’ time period to pay back the amount.

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Rollover to an IRA plan

Employer-sponsored 401K plans have limited investment options like mutual funds and ETFs whereas, Individual Retirement Accounts, or, IRAs offers a broad scope of investment alternatives like real estate, stocks, bonds, etc. Rolling over an old workplace 401K / retirement plan to Rollover IRA is easy, and at Legacy Wealth Planner we can offer managed money, self-directed IRA and advisory services.

Converting from a Rollover IRA, and Traditional IRA to Roth IRA is an option to consider but demands professional consultation. With this option, you can also withdraw money before reaching the retirement age based on circumstances that qualify significant expenses, like educational costs or medical treatment.

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Liquidating all savings

Complex monetary hardships will demand this option. Withdrawing from your savings, before the retirement age, will incur numerous state and federal penalties and taxes on every transaction. Unless you are in dire financial circumstances, this option is discouraged.            

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