It’s no secret that the average American will switch jobs several times throughout their professional career and while their transition may get easier, 401K’s definitely will not. With so much turmoil for your poor retirement account it may be time to think about a rollover into an IRA and enjoying it along with the advantages of your company sponsored 401K.
Many employers will put restrictions on the 401K’s they sponsor, giving you few investment options for your hard earned retirement dollars, making the freedom of holding an IRA more desirable. In fact, according to the Motley Fool, an investment Web site, those with a few existing 401K’s laying around held by former employers can roll them over into one IRA account, simplifying the equation to growing a retirement nest egg.
Unfortunately, simply having the sudden urge to rollover to an IRA is not good enough. You must have a trigger event in order to withdraw assets from your 401K. According to Investorpedia.com these are: attaining retirement age (anywhere from 59 and a half to 65), termination of employment, death, disability, or employer termination of the 401K plan. Only then can you proceed to transfer those assets into the appropriate IRA account.
One thing that is important to remember when moving that 401K into an IRA, according to CNN Money, is to directly transfer of your funds from your employer to your brokerage firm in order to avoid the hefty 20 percent that may be taxed should the funds pass through your hands first.
Rolling over to an IRA can be a very simple process, as most brokerages offer the service. Just remember, according to the Motley Fool, after the initial rollover you must make regular contributions to the account, and always take advantage of your company’s 401K matching.
With your IRA off to a healthy start, not only are investments options at a premium, but you may also borrow from your IRA, depending on the type of account, as long as you repay the entire amount within 60 days, according to Smart Money.
Opening an IRA may seem a relatively easy process and it can be with the right advisor and a diligence to get the job done. There are, however, some pitfalls that investors experience that you should be weary of before beginning the process. According to Fox News an investor holding highly appreciated company stock within their 401K could find themselves with a hefty tax bill upon rolling over their retirement account. Instead, the investor should place the shares in a taxable account, then tax will only be assessed based on the stock price at acquisition.
Other investors may simply wish to let their former employer hold their 401K plan or transfer their existing 401K to their new employer’s plan.
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