401k Rollover To IRA

401K Rollover to IRA

admin — Mon, 08 Dec 2008 19:22:04 +0000

It is a truly a great feeling to have worked long and hard and finally reached retirement. Many people save and plan for their retirement by using a 401K account usually managed by the company that employs them. At the time of retirement, or if you are switching companies, you have a few directions to choose from with regards to your 401K plan.
Some choose to leave their 401K plan active with the company they worked for while some choose to cash out or withdraw their funds to invest in other ways. Many people choose to do a 401K rollover to IRA to maintain their retirement fund, and there are several financial benefits that result from taking this course. I’d like to discuss a few of them along with the convenience it can provide for you.
Don’t Cash Out
Many people feel that cashing out is the best move because of the immediate benefits of some extra cash. Some use it to pay off their home or to purchase a new one. But there are a few financial penalties for doing this. If you withdraw your fund before retirement age, you must pay a 10% penalty on top of the taxes that are taken from the account. So a $100,000 fund would quickly become a $70,000 fund. Instead of re-investing your fund or buying a home it would be more beneficial to do a 401K rollover to IRA which would allow your fund to earn interest on the dollars not being taxed. If you rollover your 401K to an IRA account, you will keep the $21,000 that would have gone to taxes and penalties and you will earn interest on it the whole time you leave it in the IRA. So obviously it is financially more beneficial to do a 401K rollover to IRA instead of cashing out when you retire or change companies. But Why not just leave the funds in the 401K with your previous company?
Don’t Keep The 401K
One reason it is better to rollover to an IRA is to avoid complicating your investment portfolio. Think of this. You usually don’t plan on swithcing companies in the future, because you need stability and you like the idea of seniority. But it happens to most people anyway. So if you change companies 3 times in your 40 + years in the work force, you would have 4 seperate 401K plans. With 4 portfolio statements coming periodically, it would be a nightmare to maintain. And likely you would be discouraged by the mounting paper trail and stop paying close enough attentionto your portfolio. So to avoid this complication, consolidate your 401K pland in an IRA fund and you will be able to keep it together.
Upon retirement, you may consider keeping your 401K with the previous employer, but I still strongly reccomend you consolidate into an IRA because it is usually cheaper. Plus most companies only match your contributions for a certain time period and then cap out. By the time you are retiring, you are probably past that point and would yield greater return from the IRA than the 401K.
Find a Good Company
So perform a 401K rollover to IRA and reap the full rewards of your hard work. Remember to research the financial company well before you invest with them. It is important to have a good agent that can answer your questions and guide you in your portfolio development, and There are several places online to check out some institutions and see who is right for you.

IRA

admin — Mon, 08 Dec 2008 03:05:12 +0000

An IRA is an Individual Retirement Fund. The goal of an IRA is to save tax free or tax deferred dollars until you reach retirement age. There a a lot of different types of IRA’s, but a standard IRA works like this. You are allowed to contribute as often as you’d like up to $4000 per year, and it will be tax deferred meaning that it will not be hit with income tax until it is withdrawn from the account. After 50 years of age you are allowed to contribute more to your IRA and as long as you wait until you are 59 1/2 years old, you can withdraw the funds with no penaties. The funds are invested by the financial institution you choose to manage your IRA and thus gain you interest while it is in the account. If you withdraw the funds before 59 1/2 you will be hit with income tax and also a 10% penalty fee. The reason for this penalty is to strongly discourage early withdrawls and encourage everyone to save for their retirement. Some people who retire from a company that offers a 401K plan choose to do a 401K rollover to IRA. I will discuss the details of this move and why it is beneficial in my next post.

401K

admin — Mon, 08 Dec 2008 02:41:38 +0000

A 401K is an investment fund usually used to save toward retirement. The majority of companies in the USA have a 401K plan that they offer to their employees as part of the benefites package. When looking for a career with a particular company the 401K plan should really be one of your deciding factors. It is so very important to think of the future and save in a 401K fund to reach out for financial independance by the time you retire.

How Does a 401K Work?

All companies have a different set of rules for their 401K plan, but they all follow some general lines. Most people opt to contribute to their 401K plan monthly by deferring a pecent of or a set dollar amount into the fund directly from their pay check. Doing this is highly reccomended for several reasons. The main one is that the funds are deferred before income tax is applied to it. Therefore you are able to save untaxable dollars that build you interes. It is true that eventually the funds will be taxed, but it is best to use some form of automatic defferral such as this so that you earn interest on those dollars until it is time for you to retire. Many companies will match your contributions to your 401K retirement fund for at least a certain number of years to encourage you to save.

Once you have saved in your 401K and you reach legal retirement age, you have a few options. Many people choose to rollover their 401K into an IRA account.