Why Would Anyone Do A 401(k) Rollover


Saving for retirement is an important step in our adults lives. It helps to ensure our welfare in the future when we can no longer work to support ourselves. People who do not save sufficient funds for retirement often have a hard time surviving on what they receive from the government. This income has also been reduced for many people due to the current trends in the economy. It is feared that this income will continue to drop in the future for senior citizens. There are many tools available for saving retirement funds. The most common of these tools is the 401(k) and the Individual Retirement Account, also known as an I.R.A.

A 401(k) is a retirement account that is offered by an individual’s employer. Usually an employer will match the employee’s contribution to this account, up to a certain dollar amount or percentage of the employee’s income. The employer than chooses different ways to invest these funds to maximize the earnings for the employee. This is a great way for an individual to save a significant amount of money for retirement.

When a person leaves a job they have one of three choices on how to handle their 401(k). The first option is to leave it alone and let the former employer continue to manage the funds. The former employer will continue to maintain the account in the same way as when the individual was working for the company. There is no limit to the number of 401(k)s a person can have with former employers. The second option is to simply cash in the 401(k). The third option is to roll the 401(k) into another retirement account. This third option is the choice that most people choose.

When a person decides to do a 401(k) rollover they have two options. The first option is to place the funds in a 401(k) account with their new employer. The second option is to roll the funds over into an I.R.A. account. An I.R.A. account can be opened at any financial institution that offers them. If the new employer does not offer a retirement savings account then the only way to rollover the funds is by placing it into an I.R.A. account.

There are two main reasons why a person would choose to do a 401(k) rollover. One reason is to save on administration fees by maintaining all the funds in one account. This also helps the individual keep tract of their retirement funds. Another reason to do a rollover is to avoid any tax penalties. A person who cashes in their 401(k) plan is subject to a tax penalty of ten percent. By saving on administration fees and avoiding tax penalties the individual is able to save more money for their retirement purposes.

When dealing with a 401(k) plan, it is always best to do a rollover into a new employer’s plan if the opportunity is there. 401(k) plans typically earn more income than I.R.A. plans do. The income from this plan is deferred until retirement, so there are no penalties to roll it over. Rolling over your 401(k) also helps fees administration fees lower which saves you money on these fees by having all your funds in one account. It also helps you keep track of your funds more easily than if you had several 401(k) accounts.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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