401k Rollover - Managing Your 401k RolloverIf you've been with an employer for some time and have managed to save up a pretty penny or two in your 401k plan, it might be time to start thinking of what to do with that money in the event that you have to find a new company to work for. Ideally, you've got the perfect job, you're doing what you love, and your company is in good financial standing. Even if this describes you, you don't want to get complacent. If you don't have a "plan B" of sorts, you may wind up losing a hefty chunk of the money you've saved up thus far. With all of the downsizing and layoffs and low wage growth we've seen recently, it is, to be frank, just not safe to not think about this. No matter how safe you think your job is (and it very well may be, but you just can't be too sure these days), you need to at least have a rough idea of what your plan B options are... You've got a few options to choose from, each with its own advantages and disadvantages. No one plan is right for everyone, rather, it depends on your circumstance, and the shape of your account. • Leaving your 401k right where it is If you have an exceptionally good 401k plan with your former employer, it might be a good idea to just not touch it. One instance where you definitely don't want to move your money around is when you have stock with your former employer's company through your 401k. You get a nice, hefty tax cut on employer stock. If you want to keep that stock, no matter what you do with the rest, keep that stock through your old employer's 401k plan. • Moving your 401k into your new employer's plan If you plan on moving your 401k entirely into your new company so that you can purchase your new-employer's stock, or because they simply have a better plan, or better options, make sure that you have your former employer send the money directly to your new employer. When you ask for a check, a chunk is taken out of it in taxes, and isn't put back in unless you put that money back into a 401k within sixty days. You can only do one non-direct transfer a year, so if you move from company to company more than most people do, you should definitely have the money sent directly. • Moving your 401k money into an IRA IRA has a number of advantages, but a tax break isn't one of them. The other advantages may outweigh that, though. For example, in the event of your death, your heir(s) will have a much easier time dealing with an IRA than a 401k. Many 401k plans don't allow any non-spousal recipients to cash the money out through an IRA, and it can be hard receiving money in small distributions, which are less of a tax burden, than in one large sum. In comparison, it's not hard to find an IRA program that will allow your heir or heirs to withdraw their inheritance as they see fit. |
