401(k) Rollover in Belleville, IL. Starting a new job is an exciting time that can present you with new challenges and opportunities. However, it’s often difficult for Belleville, IL residents to know what to do with their existing 401(k) savings. Managing multiple retirement savings accounts can be stressful without a team of expert and honest financial advisors.
401(k) Rollover in Belleville,IL
There are several options for handling your 401(k) rollover in Belleville, IL, and usually it takes knowledgeable financial planning and an experienced financial advisor to know how to best deal with your savings. Correct Capital is a privately owned firm whose advisors hold themselves to the fiduciary standard. This means we work in your best interest to make sure your money is working for you as you want it to. Our business is built on trust and your confidence that we’ll do what’s best for you. We offer objective, expert advice, that we give free of the conflict of interest that can occur with public shareholders or parent company relationships. Call us today at 314-930-401K or contact us online to learn more about 401(k) rollover options in Belleville, IL.
Typically, you have four options to consider when considering a 401(k) rollover.
1. Keep Your 401(k) With Your Previous Employer
If you have over $5,000 invested in your 401(k), many Belleville, IL companies permit you to keep your accrued savings in their plan. The funds stay subject to the same rules, fees, investment plans, and withdrawal options. Many employees in Belleville, IL already like the benefits of their 401(k), such as their investment options, website, or any investing tools or guidance they offer. In this case, it may make sense to not roll over your 401(k), and to keep the savings where they are. If you leave your job between the ages of 55 and 59 ½, you may be eligible for penalty-free withdrawals. Additionally, federal law dictates that 401(k)s creditors cannot make claims against 401(k)s. If you keep your assets in your old 401(k), you won’t have to make any immediate decisions regarding your money, and you’re still free to move the funds any time you’d like.
However, it should be mentioned that keeping your old 401(k) means you can no longer make contributions to it, which may have an impact on your retirement planning. After the age of 72, you will be required to take out “required minimum distributions” from those 401(k) accounts you have at old employers. It can also be complicated to oversee several different retirement plans with numerous custodians. Withdrawal options can be limited and have large federal withholding requirements. You would not be able to take out a 401(k) loan. Correct Capital's retirement consultants can help you choose whether you should stay with your old 401(k) or not.
2. Roll Over Your 401(k) to Your New Employer
If your new employer in Belleville, IL also offers a 401(k), most employers will let you roll over your 401(k) savings to their plan. This might be the best option if the new plan has better benefits than the previous plan, including lower fees, better investment options, opportunities, guidance, or loan options. Also, required minimum distributions may be delayed even after you turn 72 if you are still in the workforce.
If the benefits with your previous 401(k) included company stock, you may require special financial planning needs when rolling over your 401(k) to a new employer. The 401(k) plan with your new employer may also contain higher fees or less diverse investment options. An experienced financial advisor will help you decide if keeping your 401(k) funds where they are is best for you.
3. Open a Rollover IRA
IRA is an abbreviation for Individual Retirement Account. A Rollover IRA is an account opened to move funds from a previous employer’s 401(k). If you already have an IRA, you can consider transferring the savings there for your 401(k) rollover. Depending on which type of 401(k) you were contributing to, it may be best to roll money to a Traditional or a Roth IRA. This way, the tax status of the money you already invested is not affected.
Contributions made to a Traditional IRA may be tax-deductible. the pre-tax money you contributed to your 401(k) is likely to be rolled over into this account. Withdrawals from this account may be subject to taxes and an early withdrawal penalty. Once you turn 72, you will have to withdraw required minimum distributions regardless of whether or not you are still in the workforce.
Contributions to Roth IRAs are made with money you already paid taxes on, so there is no tax benefit at the time the contributions are made. The benefit is that you do not pay taxes when you withdraw the money. Money you contributed to a Roth 401(k) account is often rolled into a Roth IRA. At any time you can access the money you’ve invested without having to pay taxes, and you will not pay taxes on your earnings if you are 59 ½ years old and wait at least 5 years to withdraw any funds. Contrary to Roth 401(k) contributions, money held in a Roth IRA is not subject to required minimum distributions.
While you may roll pre-tax money from your 401(k) plan into a Roth IRA, you will pay taxes on the amount received into a Roth IRA as you are “converting” pre-tax money into after-tax money.
You can start an IRA account with many banks or any brokerage firm in Belleville, IL, however many of them vary when it comes to fees or other expenses. Our team of financial advisors at Correct Capital partners with several trusted financial custodians and will help you find one that suits your needs.
4. Cash Out.
This last option is seldom advisable unless you are in grave need of money now. You will be subjected to a 20% federal withholding rate, and could face a 10% early withdrawal penalty if you take the money out before you are 59 ½ years old or if you separate before 55 years old. This may result in a large amount of your savings going towards taxes and not into your pocket. Additionally, the money won’t keep growing and it will no longer be tax-deferred. Therefore, a 401(k) rollover is preferable if you do not need the money in your pocket immediately.
Indirect vs. Direct 401(k) Rollovers in Belleville, IL
There are two different ways to actually move the funds in your 401(k):
- Direct rollover — In a direct rollover, the custodian holding your 401(k) funds will send a check directly to your new retirement account with instructions to put the money into your new IRA or 401(k). Each custodian runs differently, so the best first step is to reach out to your previous employer's 401(k) company for their process.
- Indirect rollover — In an indirect rollover, the funds are paid directly to you, and you deposit the funds directly into your IRA or new 401(k). This is also referred to as a 60-day rollover because there is a 60-day time limit for when you can deposit the money, or else you could end up paying income taxes and early withdrawal penalties.
Like cashing out a 401(k), an indirect rollover is usually not a good idea except under specific circumstances. Your Belleville, IL financial advisor will help you understand what the best way to proceed is.
Avoiding Common 401(k) Rollover Pitfalls
For even the most financially literate Belleville, IL residents, deciding on the best option for your 401(k) rollover can be complicated. The most common pitfalls people make when considering their options include:
- Not considering all your options — If you like your current 401(k) plan, it may make sense to leave your savings there. But you would not longer be able to contribute to it, and a new account may have tools and resources that are not offered by your current plan.
- Not opening a new account first — If you do open up an IRA or new 401(k), make sure to open a new account first and inform your new custodian that they'll be receiving a rollover check. If they get a check when they aren't expecting a rollover, they may mistake it for a regular contribution that you might have to pay taxes on.
- Forgetting about your 401(k) — While you might be surprised that people lose track of their retirement savings, Americans lost almost $8 billion in retirement savings in 2015. A lot can come with moving to a new job, but neglecting to do anything about your 401(k) could significantly reduce what you have available for your golden rules.
- Not taking into account the same property rule — The property your new account receives must be the property that was rolled over. Meaning, you can't take a cash distribution from your 401(k), buy bonds or another asset with it and deposit those new assets into a new account. The IRS considers that taxable income, and if you're under 59½ you'll have to pay a 10% early withdrawal penalty.
- Rolling over a required minimum distribution — You are not allowed to roll over a required minimum distribution. If you do, you will have to pay a 6% penalty tax on any excess amount.
- Not consulting with a retirement planner — Financial advisors are well-versed in 401(k) rollovers, proper procedure, and the pro and cons of each of your options.
We also assist Belleville, IL residents with:
- Succession Planning
- Fiduciary Financial Advisor
- Company 401(k) Plans
- ESOP Advisor
- Self-Employed Retirement Plans
- 401(k) For Small Business
- Small Business Retirement Plans
- Tax Planning
- Social Security Consultants Near Me
- Retirement Calculator
Contact a 401(k) Rollover Advisor Today
What to do with your 401(k) from your previous job depends on your unique situation. Many residents of Belleville, IL have found choosing Correct Capital as their financial advisors to be the best decision for them. Our financial advisors operate under the fiduciary principle, which means that we are legally bound to act in good faith and have your best interests at heart. As Registered Investment Advisors, we have access to a wealth of investment research that we’ll share with you. We’re founded on trust, honesty, and integrity.
Call us today at 314-930-401K, contact us online, or schedule an appointment with our financial and retirement planning advisors to decide how to best manage your 401(k) rollover. Call 314-930-401K or reach out to our financial advisors in Belleville, IL today.