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401(k) & IRA Rollovers
Rochester NY

401(k) Rollover

A 401(k) rollover is the transfer of funds from a 401(k) employer-sponsored plan to an individual retirement account (IRA) or a new 401(k) plan. The IRS gives 60 days from the date that the funds are removed from the original 401(k) plan to go into a new retirement savings vehicle; otherwise, the owner may incur taxes and penalties from the IRS. If you leave a job with an employer-sponsored 401(k), you must decide what to do with the money in the account. Many options are available, including completing a 401(k) rollover into your new employer’s plan or a rollover into an individual retirement account (IRA). One of the most beneficial options in many cases is the IRA rollover.

IRA Rollover

There are many benefits to completing a 401(k) rollover to an IRA. These include having more diverse investment selections than the standard 401(k) plan and potentially lower account fees. Many individual retirement accounts do not charge any account fees. A 401(k) rollover to IRA is broken down into four essential steps, choose the type of IRA account to open, open the new IRA, ask for a direct 401(k) rollover to IRA or follow the IRS 60-day rule, and select your investments. A financial advisor is a valuable resource to help you decide where to allocate retirement savings funds and choose which account would benefit your needs. In addition, a traditional IRA rollover is tax-deferred.  If you complete a Roth 401(k) rollover to a Roth IRA, taxes will not be assessed on the Roth funds.

401(k) Rollover Rules

It can be challenging to sort through the many 401(k) rollover rules. They are based on your particular situation. For example, the kind of 401(k) you had initially and which type of account you will roll it into can make a difference in whether or not you must pay taxes, fees, penalties, or other consequences. All of which is why it is so essential to get a financial advisor to assist you with your 401(k) rollover. We know the ins and outs of the 401(k) rollover rules and will help you avoid any unexpected tax obligations. Some things that you’ll need to keep in mind:

  • Traditional 401(k)s are funded with pre-tax income. You will owe taxes on these funds upon qualified withdrawal at retirement age.
  • A Roth IRA is funded with after-tax dollars, so you must pay taxes upfront. However, qualified withdrawals from a Roth IRA are then tax-free.
  • Immediate tax implications can be avoided by dispersing post-tax funds to a Roth IRA and pre-tax funds to a traditional IRA.
  • Each year, the IRS reviews the maximum contribution limits for 401(k) plans and other retirement savings accounts. Sometimes they decide to change these limits.
  • Individuals aged 50 or over may make “catch-up” contributions above the regular annual limits.

Key Takeaways

The bottom line is that there are a few things you must think about when deciding whether or not a 401(k) rollover is right for you, including fees, the range/quality of investments in your 401(k) versus an IRA, and the rules of the 401(k). Remember that you must take action as inaction can cause unnecessary fees. Are you thinking of rolling over your 401(k)? We know what your options are and can help you navigate this important decision. Call us for the help you deserve!

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