Sunday, 20 May 2018
How 401k Rollover to IRA works PDF Print E-mail

When you leave your work, where you have contributed to the 401K plan, you have three ways: cash out your 401K funds, keep funds in the current plan, or move them to another qualified retirement account. Qualified retirement account may be one of the following types: 401K plan for a new employer, a traditional IRA or Roth IRA. Movement of your 401 (K) to this account is called rollover. It's important to understand 401k rollover rules before starting.


401k rollover to IRA is usually the best way

If your current plan 401K is still great – that is excellent opportunity for investment and lower prices – and this is usually not the best option. And if you do not know that your new 401K would be great, you should not consider 401K to 401K or rollover.

With an IRA, you can usually reduce investment costs considerably and gain access to a much wider range of investment opportunities. You can even choose any other discount brokerage company to use different investment options, tools, features, prices, fees, etc. In addition, you have the opportunity to convert a 401K Roth IRA, which allows your retirement savings grow tax-free. To know more about 401k limits go to 2011 401k limits and stay informed.


How Could You do Rollover 401k to IRA


You should complete the following three steps to rollover your 401k to an IRA:

1. Open an IRA (Individual Retirement Account) with bank or company that offers this type of accounts. Also you may use discount brokers or investment company that offer this type of investments with low rates and commissions.


2. Inform or send a written notice to your employer that you want to rollover 401k to IRA and make sure that your employer will make the check payable for investment company or financial insitution which you chosen. To avoid 20% tax withholding you should set up a trustee-to-trustee transfer.


3. Once transfer set up is completed your funds continue growing on money market accounts. Also to increase monthly interest earnings you may invest money according to some plans. It depends on financial company you choose what portfolio they could offer you.


If you are faced with this decision, consider the implementation of 401K rollover into an IRA to take the opportunity to reduce costs and gain greater flexibility. Remember the research and investment firm, before opening an IRA with them, and do your due diligence in selecting investments. If you are unsure, it is usually a good idea to turn to professionals to help you through this process, and answer your questions.


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