How a 401k Rollover Works

rollover01Thousands of people change jobs every year and have to decide what they will do with their old 401k plan. To help keep retirement plan savings growing, old 401k plans can be rolled over into an Individual Retirement Account (IRA). Any 401k can be directly rolled into an IRA.

A rollover to an IRA is nontaxable and provides the same tax advantages as employer retirement plans, allowing the assets to grow tax-deferred until retirement. Just as important, if you move your savings into a rollover IRA, you can avoid possible withdrawal penalties on the money you’ve saved so far. Cashing out an old 401k plan can be very expensive.

Account withdrawals before age 59 1/2 may be subject to ordinary income taxes and a 10% penalty, resulting in a loss of nearly half the account.

Enjoy More Control

A rollover IRA will provide increased access to your money with fewer limitations and rules than an employer sponsored plan. An employer plan offeres a set menu of options, while an IRA can be specifically tailored to your investment needs. Penalty-free early withdrawals are allowed from IRA’s for qualifying events. These events include:

  • First home purchase up to $10k
  • Higher education expenses for yourself or family members
  • Payment of certain health insurance and medical bills
  • Payments for disability

 

In addition to greater access to the assets for withdrawal, the assets can be changed and reallocated as necessary, tax and penalty free. Other benefits include drawing out IRA assets over your retirement years to provide for later generations. If eligible, a rollover IRA may also be converted into an Roth IRA, while avoiding penalties.

A Rollover is Not Difficult

Starting a rollover IRA has never been easier. The first step is to contact Penn Rise Advisors to obtain guidance and learn more about which products are right for you. The second step is to gather your most recent old 401k statement and make an appointment to spend about an hour discussing the process in greater detail and filling out a few forms.

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