Now that you've retired, have you been considering shifting funds from the qualified retirement plan (profit- sharing, 401(k), 403(b), and so on) to your personal IRA. These types of 401k IRA rollovers can possibly free you from restrictive 401k investment options and provide increased control over your hard-earned dollars.
Most of the time you can contact your former boss and have your retirement plan money transferred straight to your traditional IRA and invite the two institutions to handle the 401k IRA rollover (an IRA direct rollover). In some cases, maybe you desire to convert some of the money into a Roth IRA. By doing this, the money that you and your beneficiaries take out in the foreseeable future will be tax-free. Roth IRAs are also not susceptible to the minimum distribution regulations (for you and your spouse). This may allow you to provide your family with a significant source of tax-free money in the near future. But before you complete a 401k IRA rollover to a Roth IRA, it is important to note that retirement program monies reinvested into a Roth IRA may well are subject to 5-year holding periods.
If you decide to complete a 401k IRA rollover of your company retirement accounts, there are some important considerations.
Initially, you may want to complete your 401k IRA rollover in such a way that you are not subject to an automatic withholding tax. Plan custodians must withhold 20% for federal taxes from your distribution unless the money is going directly to another trustee. If you receive the payment, you would only receive 80% of your plan money since the withheld tax will go to the IRS. If you don't set up the transfer carefully, the tax withheld could be quite a surprise. Consequently, it is best to have the IRA rollover taken care of directly between the two custodians.
in addition, you need to follow your previous employer's 401k IRA rollover directives to the letter, or it will be a long time before you get your money transferred. Many retirement plan administrators have specific forms you have to use; some might even require signature guarantees (from a bank). In other cases you could have a very tight window getting your money out. For example, some administrators might require the request for 401k IRA rollovers to be made by the fifteenth of the month preceding the finish of the quarter before funds are transferred. After which, you may have to wait another ninety days or more for the new custodian to actually receive your 401k IRA rollover funds. Of course, the particular distribution rules often vary among administrators. For this case, it is a good idea to learn the 401k IRA rollover rules that pertain to your existing 401k account.
Lose a Fortune on Your 401k Rollover
If you do not do any of these correctly:
- Opt for a distribution rather than direct transfer
- Rollover company stock to an IRA
- Choose to rollover to a Roth IRA
- Rollover to your new employer’s 401k
- Rollover post-tax contributions
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