First, let’s talk about terminology. An IRA Rollover and Rollover IRA are often used as interchangeable terms. For the purpose of this discussion, we will use IRA Rollover. One of the most common purposes for an IRA Rollover is to maintain the favorable tax status of the dollars you have accumulated in your former employer’s 401K. Rolling over your dollars from your 401K to an IRA Rollover is a simple process, but it can have serious tax implications if you are not careful. The IRS allows you to keep benefiting from the deferred tax status of your 401K account after your employment has terminated. Generally speaking, the most effective way of doing this is to rollover your 401K to an IRA Rollover. You will first need to establish an IRA Rollover account at a qualified financial institution. Next, you will need to obtain and complete the necessary paperwork from your prior employer that will instruct them to rollover your 401K to an IRA Rollover. We recommend that you instruct your former employer to direct the custodian of your 401K to transfer the assets directly to the custodian of your IRA Rollover. Although the IRS allows you to handle these funds directly as part of the rollover process if certain time restrictions are met, we do not recommend you take control of these funds personally if it can be avoided.
The operations of moving dollars from your 401K to an IRA Rollover are important for tax reasons. A second consideration, however, is how the new IRA Rollover will be invested. No matter how large or small your Rollover IRA may be, these assets are earmarked for retirement. Even if you are young and have many years until you will draw upon these dollars, it may not always be in your best interest to be ultra aggressive with your IRA Rollover. While it’s true that younger investors have a longer time to recover from investment losses, some younger investors have a low tolerance for risk. Remember, it takes a lot more than a 50% gain to make up for a 50% loss.
401k Rollover Frequently Asked Questions
Here are some answer to your frequently asked questions regarding 401k rollovers.
- What will the stock market do tomorrow, next month, or next year?
- How do I know what my investment return is?
- Why is my 401k such an important benefit?
- How important are taxes when investing?
- What is a 401K Rollover?
- Is there such a thing as a “free lunch” in investing?
- What is an IRA Rollover?
- What is an investment policy statement?
- What do I do after I inherit an IRA?
- What are Treasury Inflation Protected Securities (TIPS)?
- How much risk should I be taking in my IRA rollover and other retirement assets?
401k Rollover Section Menu:
- 401k Rollovers
- Sample Fee Disclosure – Detailed Fee Disclosure
- Investor Resources – Investment Management Process – 401k Rollover Errors
- Common Investing Mistakes – No Guarantees of Continuance – Not All Investors are Experts – Nobody is Perfect – It’s All About Discipline
- 401k Rollover Options – Direct Rollover IRA – Direct Rollover to Your Current Employer’s Retirement Plan – Lump Sum Distribution
- Glossary of Investment Terminology
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