401k to IRA Rollover Options

If you already have a 401k retirement plan and if you change your employer or get retire, there are a few options available for you with regards to a 401k to IRA Rollover.  Let’s discuss briefly the available options for you.

Cash out the 401k account

You can simply cash out your 401k plan at any time you prefer. But this option comes with many constraints. First of all, if you get in to this plan before the age of 59 ½, it is called a premature distribution, and there will be 10% penalty on the money you take out. In addition to that, the employer is required to withhold 20% of the distribution for tax requirements. At the end of the day, this option will cost you a fortune. Usually this is the costliest way to go about your 401k plan and it is not advisable to settle on this unless there is an absolutely necessary requirement for doing this.

Rolling it over to an IRA

There are two further options available under this option;

a.    Indirect rollover
In this option, your employer writes the check for 401k rollover in your name.  Then you get 60 days period to open an IRA and deposit the money from 401k plan. You can either deposit the whole amount you get from 401k to an IRA Rollover or a part of it. For the money you don’t deposit in the IRA within 60 days, the penalties and taxes will be applied as described in option #1. If you deposit all you got from 401k rollover into the IRA, then you lose nothing in penalties and taxes.
b.    Direct rollover
Under this option, you grant your employer the authorization for transferring 401k money directly to your IRA account. The check is made to the brokerage company on behalf of you. With this option, you do not get involved in the transaction; therefore, it is the cleanest and easiest way of 401k rollover. You can obtain a free kit from us regarding this option.

Keep your 401k where it is

Most employers allow you to continue maintaining your 401k even after you leave their company. If this is the case and you see no reason for you to rollover it to an IRA account, then you can leave it as it is. Before taking this decision, you may want to consider many reasons related to the employer.

Rollover to new employer’s 401k

There are some companies that allow you to rollover the old 401k plan into the new 401k plan. Although this sounds easy and clean, there are a few disadvantages attached to this. It limits your investment opportunities compared to having an IRA. In addition to that, you lose tax advantages offered in IRA but not in 401k. Therefore, it is advisable to open an IRA for rollover of your 401k retirement plan.