Saving money for your retirement is very important. Luckily, employers make it incredibly easy to start a retirement fund in the form of a 401(k). A 401(k) plan can provide employees with a very large retirement fund, so when the time comes to retire, they will be comfortable with the amount that they have saved. Many people like to stay with the same job for the entire span of their career, but things can happen that force people to look for another job. When this happens, you will want to roll over your 401(k), so you can continue to save while working. The process is not very difficult, and it is important to rollover as soon as you can in order to take advantage of any benefits your new employer may be able to give you.
There are a few options that you can decide to do when it is time to leave your current employer. You can roll your funds over to the new 401(k) account at your new employer, you can roll the funds over to an IRA, which is an account that is set up at a financial institution that allows people to save for retirement with tax-free growth or on a tax-deferred basis, or you can withdraw your funds from the account for yourself.
The first and usually most common option when rolling over your funds is to transfer the funds from your old account to your new 401(k) account with your new employer. In order to do this, you will want to do what is called a direct rollover. This process is easy. You will set up the new account with your employer, and then you will go back to your old account and request that the money be transferred. Do not clear out the account by requesting a check made out to you, and then deposit it into your account by yourself. If you have a check made out to you, the IRS will request that your employer withhold 20% of the funds. Getting that money back to you is complicated, and if you do not follow the directions and due dates, you could lose that money.
You want to have the funds directly transferred from account to account without ever seeing the money. You will want the administrators of the account to direct transfer the funds to the new administrator. These people are called custodians. You will want to specify that you want your funds transferred directly from the current custodian to the new one. You will talk to your old and new employer about their specific directions on completing the process.
If you decide you do not like the 401(k) plan that your new employer is providing, you can set up an IRA, or an individual retirement account. You will want to decide on which type of IRA is right for you, and choose a financial institution that you want to work with. Once you have opened this account, you can contact the human resources department at your previous job to complete the necessary steps. Make sure to get a direct rollover, so you do not have to get any money taken away because of taxes.
The last option you have when you are faced with rolling over funds is withdrawing your money out of the account, and keeping the funds for yourself. You should only do this if you are retiring, or are in dire need of the money. You will have to pay income tax on the money, as well as a 10% penalty for an early withdrawal if you are under the age of 59 1/2.
When it comes time to make a rollover, you need to be in contact with the appropriate people in order to make the process easy. You have many options available to you, and exploring the pros and cons of each one will help you decide which is right for you. Each 401(k) plan is different depending on the employer, so make sure to ask any questions you have about your specific plan.