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What are the Best Tips for a 401k Rollover?

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  • Written By: Felicia Dye
  • Edited By: Heather Bailey
  • Last Modified Date: 31 January 2019
  • Copyright Protected:
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    Conjecture Corporation
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A 401k rollover is a much better option than cashing out, but this is not the only decision you need to make when you plan to move the funds in your retirement account. You also need to decide where you will transfer the money. To make the best decision in this regard, you need to assess your financial situation, your new account options, and how close you are to achieving the goals you have set.

If you are debating between rolling your money over to another 401k or an IRA, you should consider your financial state. If you are experiencing difficulties, you may want to keep the money in a 401k because then your creditors are prevented by federal law from accessing it. If you roll the funds into an IRA, they may not be protected unless there is a state law in effect.

Another thing to consider with a 401k rollover is the amount of control you want to have. If you roll your funds from one 401k plan to another, you may be subjected to similar investment limitations. When you put the money into an IRA, you are likely to find that you have substantially more investment options. This can be important if you are falling short of the financial goals you set and you want to apply new investment strategies to get on track.

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If you are considering a 401k rollover because you are switching jobs and it is likely that you will switch jobs again, you may want to opt to roll the funds into an IRA. Otherwise, you may find it difficult to manage all of the accounts you have established with different employers. Before you make a decision in this regard, it is always best to assess a new employer’s retirement plan because you may find it favorable. If you do decide that an IRA is the best option for you, strongly consider transferring your funds into a traditional IRA. If you choose a Roth account, the transfer will be subject to tax.

Sometimes a 401k rollover is direct. This means the funds are sent directly from one account to another. In some instances, however, the funds may be sent to you and you will be responsible for depositing them into the new account. If this happens, make sure the funds are in a check that is addressed to the new account custodian so you can avoid withholding and penalties. Also, realize that you only have 60 days to put the money into a new account before you will be subject to penalties.

A 401k rollover is something you can do on your own. The best advice, however, is likely to be professional advice. Before you make any decisions, you may want to consult with an investment adviser, especially if you have already accumulated a substantial amount of money or if your goals are to accumulate substantial amounts.

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