Where to Rollover Your 401(k) Retirement Money
Stumped by what to do with your old workplace retirement account? Money Girl helps you find the best place to move your 401(k) to avoid tax and keep your retirement nest egg growing.
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Congratulations- you just accepted a new job! But now, what should you do with your workplace 401(k)? This is a common question that stumps many workers.
In this episode I’ll discuss options for what to do with an old 401(k), no matter why you may be moving on from your job. You’ll learn the best ways to avoid taxes and penalties, and keep your retirement nest egg growing.
What Is a Retirement Rollover?
While a rollover sounds like a cute trick you might teach your dog, it means something completely different in the world of personal finance. When it comes to your money, doing a rollover means moving funds from one retirement plan to another.
If you’re like most workers, you’ll change jobs several times over the course of your career. The beauty of a workplace retirement plan, such as a 401(k) or a 403(b), is that it’s portable. In other words, you own it and can always take the money with you when you leave a job.
When you rollover a retirement account, you don’t lose contributions you’ve made or the investment earnings that may have accumulated over time. And if you’re vested, you don’t lose money any money that your employer contributed as matching funds or discretionary profit sharing.
Rolling over money from one retirement account to another means you don’t have to pay any tax. The funds maintain their tax-deferred status until you make withdrawals in the future.
The only trick with a retirement rollover is that once you initiate it, you must complete it within 60 days. Otherwise, it’s considered an early withdrawal. If you’re younger than age 59½, taking an early withdrawal triggers income tax, plus an additional 10% penalty.
Options for an Old 401(k) Retirement Account
When you switch jobs, you typically have the following 4 options for your workplace retirement account:
1. Cash out the account.
2. Leave the funds in your old employer’s plan.
3. Rollover funds into a new employer’s plan.
4. Rollover funds into an Individual Retirement Arrangement (IRA).