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Changing Jobs? Learn what
to do with your 401(k). |
| 401(k)
Options:
Rollover
your
401(k) money to an IRA account
Leave
your
401(k) money in your previous employer's plan
Rollover
your
401(k) money to your new employer's qualiied plan
Take
a full or partial withdrawal
Related
Articles |
Whether due to
retirement, career change, company lay-offs or firings, leaving a job
is a stressful time in anyone's life. There is a lot to consider and
worrying about what to do with your 401(k) assets just adds to this
stress. But don't forget about these assets. A large part of your
retirement investments are probably in your 401(k) account.
Get informed and be smart about the decisions you make regarding
your 401(k) account assets. Here is an explanation of your four options.
1.
Roll
over
all or a portion of your 401(k) money to an IRA account
One option is to roll over your 401(k) plan balance to an
Individual Retirement Account (IRA) with another financial institution,
such as Westcore Funds. These assets can be rolled into a Traditional
Rollover IRA, but cannot directly roll over into a Roth IRA because of tax
implications.
To
avoid the mandatory federal income tax withholding, you will want to
request a "Direct Rollover", where your current employer makes the
withdrawal check payable to your new IRA's custodian (ie. Westcore
Funds), on your behalf.
If
you choose an "Indirect Rollover," the distribution check is made
payable to you, minus the mandatory 20% your employer must withhold for
federal income taxes. This 20% withholding is to cover any income taxes
due on this distribution at the end of the year. You may get a portion of
this withholding back, or you may owe more in taxes that what was
withheld. Within 60 days of receiving this distribution check,
you must roll over the entire distribution amount, including the check you
received plus the 20% that was withheld, into an IRA account. If the
rollover is not completed properly, taxes and penalties will apply.
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All
things considered, a "Direct Rollover" is the easiest and most
tax efficient way to move your 401(k) to an IRA account.
Find
out how to get started with a Westcore IRA here.
| Pros |
Cons |
* Assets in
account continue to grow tax-deferred
See
the benefits of tax-deferred investing here. |
* Cannot
borrow against your assets as loans are not available from
IRAs |
| * Choose
your own investments |
* With an
indirect rollover, you only have 60 days to complete the rollover, 20% federal tax is automatically withheld from
the distribution, and you must rollover the entire distribution
amount, adding the 20% that was withheld from your own pocket |
| * Easy
access to your IRA account(s) |
| * Can move
your assets into a future employer's plan at a later date1 |
| * Although
you cannot directly roll over to a Roth IRA, you may be able to convert
your Traditional IRA to a Roth IRA at a later date |
*
Eligible rollover amounts include pre-tax contributions
and all earnings. After-tax contributions can be rolled
over only if pre-tax contributions and all earnings
are also rolled over. |
| * Avoid
current income taxes and 10% early withdrawal penalties |
* No
special distribution alternatives, such as forward averaging, are
allowed for IRAs |
| * With a
direct rollover, avoid 20% federal tax withholding |
* May have
to pay an annual account maintenance fee |
1 If you plan to move your
assets into a future employer's plan at a later date, you must rollover
your current 401(k) assets into an separate IRA account from any current
IRA accounts you may have. If it is rolled into the same account, the
assets are comingled and cannot be separated out to roll into a qualified
plan in the future because of tax implications.
2.
Leave
your 401(k) money in your previous employer's plan
Depending on the employer's rules, if you have more than $5,000 in
your current plan, you may be able to leave your money in that plan. Many
plans allow you to keep these assets invested in their plan until the time
of retirement (April 1 following the year that you retire or April 1
following the year that you turn 70 1/2). Or you can just leave your assets
there temporarily until you decide what to you with your 401(k) account.
If you like the investment options in your current plan, this may be a
good choice for you.
| Pros |
Cons |
* Assets in
account continue to grow tax-deferred
See
the benefits of tax-deferred investing here. |
*
Investment choices are limited to employer's plan |
| * Retain
the ability to rollover assets at a later date |
*
Employer's plan may limit withdrawals and exchanges between
investments |
| *
Employer's plan may allow you to borrow against your assets in
this account |
* May have
to pay plan expenses for your account |
| * Avoid
current income taxes and 10% early withdrawal penalties |
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3.
Roll
over
all or a portion of your 401(k) money to your new employer's qualified
plan
Another option is to roll over your 401(k) money from your current plan
to your new employer's plan. You will need to check with your new
employer to ensure that the new plan will accept a rollover from your
previous 401(k) plan. If you like the investment options in your new
employer's plan, you can perform a trustee-to-trustee rollover.
Investments from your previous plan can be sent directly to your new plan
without incurring any income taxes or penalties.
| Pros |
Cons |
* Assets in
account continue to grow tax-deferred
See
the benefits of tax-deferred investing here. |
* Some
employers do not allow rollovers from other employer plans |
| * Your
retirement assets are all in one place, making it easier to track |
*
Investment choices are limited to the new employer's plan |
| *
Employer's plan may allow you to borrow against your assets in
this account |
* Eligible
rollover amounts include pre-tax contributions and all
earnings. After-tax contributions can be rolled over
only if pre-tax contributions and all earnings are also
rolled over. |
| * Avoid
current income taxes and 10% early withdrawal penalties |
*
Employer's plan may limit withdrawals and exchanges between
investments |
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4.
Take a full or partial
withdrawal
While this option may look tempting, beware. If you choose to take a full
or partial withdrawal from your 401(k) account, you will owe current
income taxes (federal and possibly state) on the eligible portion of your
withdrawal. Also, if you withdraw before age 59 1/2, you may owe an
additional 10% early withdrawal penalty. And if the check is made payable
to you, 20% of your withdrawal will automatically be withheld by your
employer as prepayment of your federal income taxes.
| Pros |
Cons |
| * Immediate
use of money for current expenses |
* Lose
tax-deferred status |
| |
*
Distribution is taxed as current income. |
| * If under
age 59 1/2, distribution may be subject to 10% early withdrawal
penalty |
| * May be
subject to 20% federal income tax withholding |
| * Lose the
flexibility to move your money into an IRA or future employer's
qualified plan after 60 days |
Related
Articles and Web Pages:
If you are interested in learning more about retirement investing, 401(k)s
and IRAs, here are some related articles and informational web pages.
The
401(k) Road to Retirement: Are you steering or along for the ride?
When
you leave your job, don't leave your 401(k) money behind.
Investing
for Retirement
Traditional
and Roth IRAs
Getting
Started with a Westcore IRA
Return
to Top of Page
This information should not be construed as
investment or tax advice. Investors must consider their own situation
before making an investment decision.
An investor should consider
investment objectives, risks, charges and expenses of the Fund(s)
carefully before investing. Click here for a prospectus,
which contains this and other important information. Please
read the prospectus carefully before investing.
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distributed by ALPS Distributors, Inc. |
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