Why Should You Consolidate Your own Funds with a Rollover 401k
Most employees transfer from one employer to the next over their careers; these people leave retirement savings that they have accumulated at each of those past employers. Most employees will alter their careers at least once in their lives (actually, the mean number of career adjustments is said to be around to 5-7 instances), this results in a number of 'abandoned' pensions and retirement savings accounts. These accounts are nevertheless growing, although no brand-new funds are being added to the balances.
But wait, when the funds are still growing automatically, can't they just be left alone right up until retirement?
While the answer is technically yes, you're missing out on a significant number of rewards if you choose this course of action. What you may need is a rollover 401k!
A rollover 401k account is a Roth IRA or traditional IRA into which you move the actual funds from your previous employer-sponsored retirement plans. Consolidating your resources into a single rollover 401k has a number of different advantages:
1. Easier Management. When you have one rollover 401k account instead of seven, the actual management and reporting of your respective retirement savings naturally becomes simpler. Although most people take a fairly un-aggressive approach to managing their retirement savings, the reality is that several accounts necessarily and needlessly make it harder to get the best from your savings. For example, the retirement portfolio should be often rebalanced and that becomes onerous to do with several accounts.
2. Easier Reporting. Consolidating your retirement money into a single rollover 401k account makes reporting much easier when you arrive at tax time. Instead of receiving end of the year statements from several distinct accounts and painstakingly going into the details of each one for tax preparation software, you'll obtain one statement.
3. Better Investment results. Studies have shown that more employees are involved in employer-sponsored retirement plans when a lesser number of investment options are available. As a result, most employers limit his or her plans to a few basic options : maybe a single domestic equity fund, an international option and some life cycle funds. Moving your funds into a single rollover 401k account at a securities firms offers a greater number of investment options, a few of which could offer better investment returns than the options within your old employer's accounts.
As you can see, there are pretty significant advantages to joining together your retirement savings in to a single rollover 401k account. To start the rollover 401k process, you'll must first open a new IRA rollover account (or use an existing IRA) and then contact the particular representatives of each of your old accounts to request the particular paperwork necessary to complete a rollover 401k. If you have any questions, a professional tax planner or retirement advisor should be able to assist you to navigate any difficulties a person encounters throughout the process.
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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