Where To Roll Over My 401k – One of the biggest financial questions working people like you and me face when switching jobs is whether or not I should switch to a 401 (k) IRA.
This is a BIG decision and not taken lightly! The answer may be losing hundreds of thousands of dollars later.
Where To Roll Over My 401k
Or worse … make the wrong move and you could end up with an IRS debtor of tens of thousands of dollars in taxes that you are unable to pay. Yes!!!
Pros And Cons Of Rolling An Ira Into A 401k
Recently I faced this decision, now I decided to make new changes in my life and change my job.
I’m not ashamed – my 401 (k) balance was pretty big! 12 years of saving and finding tons of employee matches will result in a very healthy 6-digit dose.
As I emphasized before, with that capital, you don’t want to beat around the bush or delay that decision. Your money can be used to earn more money! This is the beauty of mixing ingredients!
So when I considered my options and asked myself if I should switch to the 401 (k) IRA all indicators were a vibrant green light YES!
How To Rollover A 401k
In this post, I will explain why and how you can use this thought process if you are faced with the prospect of a 401 (k) IRA rollover.
Before we get into why IRA rollover is a good idea, let’s first look at what options you have for a 401 (k) when you quit your job.
About a week after my last day at work, I received a letter explaining that I had the following options:
If you are under 59-1 / 2 years of age, you NEVER want to go for Option 4 unless you really are in financial trouble. (Even then, there are better options you can get.)
New Job? Deciding Whether To Roll Over The Old 401(k)
Why is this a bad choice? Not only will you liquidate your retirement savings, you will also have to pay taxes and a 10% penalty on your balance. Think about it: For every $ 100,000 you spend, you can pay 25% tax ($ 25,000) and a 10% penalty ($ 10,000). This will eliminate almost all of your income!
Believe it or not, 25% of people choose this route, according to a report by the Transamerica Center for Retirement Research.
As I mentioned, I chose option 3 (transfer the 401 (k) to an IRA with a private institution) for many good reasons, whether to keep it in the old plan or transfer it to my new company’s 401 (k) plan.
Most people know that selecting 401 (k) funds is not free. There are annual costs associated with having them. Typically, these costs are expressed as a percentage known as the “expense ratio”. For example, a 0.5% spend rate means you pay $ 500 for every $ 10,000 you invest in this fund each year. These costs are paid to the fund management company and are borne by the fund manager, intra-fund transactions, etc.
K) Rollover F.a.q.: What You Need To Know
Well, if you don’t know, the fun doesn’t stop. There is a second group that you pay when you have a 401 (k) which is called “administrative expenses.” This includes 401 (k) fund handling, accounting, etc. A completely separate cost group for things like According to Bankrate, these administration fees can sometimes be between 0.36 and 1.71 percent.
As you can imagine, once you hit six digital balances, those 1% and 2% “surcharges” can really start to add up. This will seriously eat up your pocket money!
To give you an idea, the Free Personal Capital Calculator has a tool that estimates how much money you will lose over time as a result of these 401 (k) contributions over the next few decades. He estimates that I will lose $ 85,384 in just 10 years! OH!
So how can we avoid these stupid expenses? Simple… don’t hold money in 401 (k). Take your retirement savings and transfer them to an IRA.
Should I Roll Over My 401(k) To My New Employer?
Check this out. Vanguard charges a cost ratio of 0.17% for a simple stock index fund. If you are transferring more than $ 10,000, you will qualify for their special “Admiral Promotion” where the cost will drop to 0.05%. That’s $ 50 for every $ 100,000 invested.
If your 401 (k) was similar to my old plan, it gave you about 20 options to invest.
I say -bla- because you often hear complaints that the funds they offer 1) are not working well and 2) have a very high spending rate.
For the most part, I recommend going with an index fund and calling it a day-off, but for more advanced investors, focusing on asset allocation diversification can be very beneficial. Check out this post on how good asset allocation can help stabilize losses during the Great Recession of 2008.
Do Not Drain Your 401(k), Or Let A Former Employer Do It
By shifting your 401 (k) to an IRA, you open the door to all the assets you can buy from that financial institution. In my case, all that Vanguard has to offer is something I could invest in.
So if I want sector-specific stocks like Healthcare or Technology, I can!
If you completed my retirement plan before age 45, you know that IRA rollovers work all the time.
Why? Because for early retirement I use 72t ladder or Backdoor Roth IRA to access my money early. Both strategies allow you to start withdrawing from your retirement savings earlier without paying a penalty until the age of 59-1 / 2.
Should I Rollover My 401k?
Unfortunately, you cannot use these 401 (k) strategies. This is because when you have money in 401 (k), your plan administrator (ie your employer) must give you access to such funds. So if they reject you, you’re out of luck.
Even if you don’t think like that in your job, you should definitely find out. I was shocked by my last job to find out they don’t allow early withdrawals or loans from my 401 (k).
By shifting your weight to the IRA you keep all the power (if you need it)! If you wish, you can give yourself the option of using one of these Early Access strategies.
Before I finish, I just want one final point regarding a 401 (k) IRA rollover and things to watch out for.
How To Roll Over A 401(k) To Fidelity
When you transfer your retirement savings, the financial institution will ask if you want to switch to a Roth IRA and not a traditional IRA. Don’t do this unless you fully understand what you are getting yourself into.
When you switch from a traditional 401 (k) to a Roth IRA, you switch from a pre-tax to a post-tax account. Translation: You will owe a lot of money in taxes!
So, if you are not ready to cover that huge tax bill, switch from a traditional 401 (k) to a traditional IRA. When you do this, you don’t pay any tax.
In short, if you are asking if I should roll my 401 (k) over the IRA, the answer for me is an absolute yes!
How Do 401k To Bitcoin Ira Rollovers Work?
Keeping track of your life savings is a must in my book. This is something you really don’t want to put away or leave in someone else’s hands. Manage your money in the most effective way! While the transition from a 401 (k) to an IRA may seem like a pain, it’s actually a lot simpler than you might think. Just pick up the phone or hop on your computer and make it happen.
As we saw above, those 10 minutes could be worth tens or even hundreds of thousands of dollars in retirement over the next few years.
Readers – How many have transferred your 401 (k) to the IRA? What made you (or not) do this?
Rollover 401k To Roth Ira: 4 Steps
Roll over 403b to 401k, how to roll over 401k, roll over 401k to start business, best place to roll over my 401k, how to roll over my 401k, roll over tsp to 401k, roll over 401k to ira, when to roll over 401k, roll over 401k to roth, roll over 401k to vanguard, roll over 401k to fidelity, where can i roll over my 401k