A Comprehensive 401k Rollover Guide

A 401k rollover is an important decision that must be made whenever you decide to change jobs, retire, or are unhappy with how your current account carrier is handling your account (assuming you do in fact have the option to change away).    Making the right decision is critical to the success of your transfer of funds and will play a major role in what you take away from the change.

One of the most significant effects of either doing the rollover correctly or not comes in the form of tax implications.  If you attempt a 401k rollover that is setup incorrectly, you place the wrong funds or type of funds into the account you are transferring to, or you make any number of incorrect decisions regarding the transfer; you will end up with a tax liability that is both unexpected and unpleasant.

The object of this website is to help investors, employers, and their planners learn the ins and outs of the 401k rollover options.  It is important to run over all of the specifics of this type of account change.  You also need to be aware of the different 401k rollover options that you have as you assess the best opportunity for you to keep and grow your retirement income.

What types of vehicles can I do a 401k rollover to?

There are a number of different options that you can take when deciding what to do with your retirement account money.  Choosing the right option for you is going to take sufficient research and/or the help of an experience 401k rollover guide.

Where can I do a 401k transfer:

401k Rollover to IRA

One of the most common 401k rollover conversions is to a Traditional IRA account.  The benefit of this type of rollover is that the accounts already behave similarly.  In your 401k account, you have been making tax-free contributions into the account and have enjoyed tax-free growth.  Correspondingly, in a Traditional IRA account, investors are able to make tax-deductible contributions to the account.

Both of these accounts are setup to take the tax liability upon distributions out of the account.  The growth of the account is taxed upon exiting.

Because of this similarity, the 401k rollover to a traditional IRA tends to be a fairly smooth transition.  There are certainly 401k rollover rules and restrictions to follow if this is the conversion option that you are going to elect, so be sure to see our article on How To Rollover A 401k To A Traditional IRA.

401k Rollover to Roth IRA

To many a rollover into a Roth IRA is a very appealing option.  The newest fad in financial planning is to transfer everything and anything into a Roth IRA account.  While this is certainly not recommended in many cases, there are genuine benefits to doing a Roth IRA rollover.

Because of the nature of the Roth IRA, a rollover into the account can provide significant tax benefits for certain people.  The reason we don't say that it will provide tax benefits for everyone, is that when you do a 401k rollover to a Roth IRA, you are responsible for the tax liability on the transfer.

This only makes sense when you expect to be in a lower tax bracket at the time of the 401k rollover, than you will be upon the date of your required minimum distribution.  Something that people often overlook is that this is generally not an easy calculation to make.  Retirees are often surprised to find themselves in a higher tax bracket than they were when they were working.  They forget to factor in social security benefits, the effect of having to pay taxes on that income, other annuity and retirement income sources, etc.

Again, you are fortunate that we have dedicated an entire page to this site on Can You Do A 401k Rollover to a Roth IRA.  This article will discuss the intricacies of doing this type of 401k rollover and what you need to be watch for and beware of before making this transition.

Rollover your 401k to another 401k

Yet another option for your current 401k account is to do a 401k rollover to a 401k.  This type of transfer works well if you are moving from one job to another and the new 401k plan seems like a good fit.

There are advisors that will advise against this, and tend to suggest that you should always go to an IRA account for your rollover.  There are definite advantages of this type of 401k rollover, so be sure to explore this option if it is available to you.

Summary

A 401k rollover is becoming a frequent and necessary exercise in the life of many investors and workers around the United States (site is certainly not exclusive to the United States, but focuses around US tax laws).  Changes in job, circumstances, and preferences have required many to figure out this daunting task.

There are many rollover rules and guidelines to follow that make the consequences of your decision very real.  Be sure to avoid the common pitfalls and keep your money as safe and secure as possible.  Be sure to explore the site to answer all of your 401k rollover needs.

 
A Comprehensive 401k Rollover Guide| 401k Rollover Guru
A Comprehensive 401k Rollover Guide| 401k Rollover Guru
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Videos

This 401k rollover video was prepared by Adam Bold from The Mutual Fund Store (not affiliated with the401krolloverguru.com).  Provides a pretty basic layout of some of your 401k rollover options.  While the author's advice is to rollover into an IRA, it is important to note that there are situations in which this is not recommended.


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