- info@jhpwealthbuilders.com
- (732) 762-4733
401(k) Rollover
A 401(k) Rollover is the process of transferring funds from a previous employer-sponsored 401(k) retirement plan into another tax-advantaged retirement account. By doing a rollover, it allows you to keep your retirement savings growing, increasing investment options, and consolidating funds for easier management. No transfer fee, no penalty or taxes due at transfer. “Receive up to 40% sign-on bonus”
Types of 401(k) Rollovers
Direct Rollover:
This is the most straightforward option. Funds are directly transferred from your 401(k) plan to the new account, such as an IRA or another 401(k). Because the funds never pass through your hands, this method avoids any tax withholding or penalties.Indirect Rollover:
With an indirect rollover, your 401(k) provider sends the funds to you, and you are responsible for depositing them into the new account within 60 days. If you fail to meet the deadline, the IRS treats the funds as a withdrawal, resulting in taxes and a possible 10% early withdrawal penalty. Additionally, your employer typically withholds 20% of the amount for taxes, which you’ll need to replace during the rollover to avoid penalties.Rollover to a Roth IRA:
If you’re moving pre-tax 401(k) funds into a Roth IRA, the process involves converting them into after-tax funds. You’ll need to pay income taxes on the amount rolled over. However, once in a Roth IRA, the funds grow tax-free, and qualified withdrawals in retirement are tax-free as well.
Steps for a Smooth 401(k) Rollover
Choose the Destination:
Decide whether to transfer funds to a Traditional IRA, Roth IRA, or your new employer’s 401(k). Consider factors like investment options, fees, and future flexibility.Open the New Account:
If rolling into an IRA, select a provider and open the account before initiating the rollover.Contact Your 401(k) Plan Administrator:
Request a direct rollover and provide details of the receiving account.Monitor the Process:
Ensure the funds are successfully deposited into the new account to avoid penalties or delays
