What Are The 401k Rollover Options?
When you have determined that a change is coming to your qualified retirement plan, either via a job change or other permissible event it is important to ask yourself about what 401k rollover options you have. There are number of different things that you can do with your account, the last of which is to let the decision slide. Procrastination in 401k rollovers is not a virtue.
The first thing that you must consider when you are changing from your current pension or retirement plan is that the decision has a timetable to it. The longer you take to figure out your options, the less options and the greater the consequences you will face.
Most 401k rollover options have a time limit of 60 days after distribution to complete the account transfer. This rule is only bypassed if the time passes in the hands of those actually handling the transfer. Meaning that once you have done everything that you can do, clerical mistakes by the processing company will not cause penalties from the 60 day rule. This doesn't not mean that you will not have problems with the IRS and have to fight for your position as legitimate. The safe thing to do is to give yourself a significant buffer to do the rollover.
Depending upon your situation, there are a number of different options that a 401k rollover can offer. The most time tried and frequent transfer over the years has been a transfer from one 401k plan to another. Once you start your new job, you are able to transfer your existing plan to the new plan. The tax implications to this type of transfer generally isn't too significant. The major difference can come in the specific rules and options the new plans provides.
There are often 401k rollover options that provide the plan participant with more flexibility with their retirement funds. These options include 401k rollovers to traditional IRAs and even 401k rollovers to Roth IRAs (see information center for more information on these options). A rollover to an IRA account can provide the ability to extend the account beyond the life of the participant, can hold significant tax advantages, and may provide added security and flexibility with early funding needs.
A 401k plan may also be transferred into several other types of qualified retirement plans. This currently includes: 401k, 403a, 403b, and SEP. Each different type of 401k rollover will have its own significant advantages, disadvantages, and restrictions. It is important to careful analyze your options and determine the best placement of your retirement income.
To sum up the 401k rollover options available...
- 401k
- 403a
- 403b
- SEP
- Traditional IRA
- Roth IRA
- Other?
When determining the best way to rollover your 401k, it is recommended that you consult a qualified and knowledgeable financial advisor. They will be up to date on the current tax laws and will be best able to guide you to making a smart rollover decision.