When you leave an employer after contributing pre tax money to your 401(k), you generally have four options: to cash out, keep your 401(k) where it is, roll the 401(k) into a new employer plan or roll over to an individual retirement account (IRA). Cashing out comes with taxes and potential penalties, and leaving the 401(k) with your former employer prohibits new contributions. That's why many people choose to rollover their 401(k) to a new employer 401(k) or to an IRA.
When an employer offers a retirement plan, that can be a great opportunity. Some employers offer 401(k) plans where you can deposit a portion of your paycheck and invest in mutual funds, stocks, and other products. Some companies may match your contributions, which can be a win-win for you. Others offer profit sharing, meaning employees get a portion of the company's profits. Employees can save these funds for retirement.
A 401(k) rollover makes sense if you're changing employers and want to take an active role and simplify. Having two different 401(k) with different investment choices and custodians can be difficult to manage. Since you don't need an employer to open an IRA, you can transfer the money to a custodian of your choice and possibly still keep making contributions until you retire.
If you're not going to stay with your current job until retirement, transferring your 401(k) to an IRA allows you to save for retirement without linking your funds to your employer. It may also offer you the opportunity to invest in a much broader choice of investments not available in a 401(k). Just note that you can only perform one indirect rollover per 12-month period.
You're eligible for a 401(k) rollover to an IRA when you leave your current employer and your new employer does not permit rollovers into their 401(k) plan. You may also decide to rollover into an IRA because you want more investment options not available in your 401(k) plan. However, you'll need to transfer the money to a qualified IRA custodian. Talk to Oceanic Capital Management LLC about your situation and your 401(k) rollover options.
According to 401(k) rollover rules, you won't incur a penalty if you roll over the funds within sixty days. A direct rollover allows the administrator to transfer the funds directly to the IRA, which will ensure that you won't need to pay penalties for a late transfer.
If you prefer an indirect IRA rollover, you'll receive a check made out to the plan custodian. It's your responsibility to send it to the custodian within 60 days. If you forget to send the check in on time, you might have to pay income taxes and an early withdrawal penalty.
Talk to Oceanic Capital Management LLC about saving for retirement. A trusted team member will explain investments, taxes, Social Security, IRA plans, 401(k) rollover options, and answer any questions you may have about the process. Start with a free portfolio risk analysis, then schedule a free consultation. Oceanic Capital Management LLC offers one-on-one chats and group meetings through phone, video conference, or in-person sessions. For tax implications related to your retirement plan rollover, please consult your tax advisor.
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