401(k) Rollover in Chesterfield, MO. Starting a new job is an exciting time that can present you with new challenges and opportunities. However, it’s often difficult for Chesterfield, MO residents to know what to do with their 401(k) with their previous employer. Managing multiple retirement savings accounts can be complex and a pain in the neck.
401(k) Rollover in Chesterfield,MO
There are a few different ways to handle your 401(k) rollover in Chesterfield, MO, and usually it takes knowledgeable financial planning and an experienced financial advisor to know how to best deal with your savings. Correct Capital is an independent advisory 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 belief that we’ll do what’s best for you. We offer impartial, expert advice, and will never try to convince you of something we don’t believe in ourselves. Call us today at 877-930-4015 or contact us online to learn more about 401(k) rollover options in Chesterfield, MO.
In general, you have four options to consider when considering a 401(k) rollover.
1. Keep Your 401(k) With Your Former Employer
If you have over $5,000 invested in your 401(k), most, but not all, Chesterfield, MO companies allow you to keep your retirement savings in their plan. The funds stay subject to the same rules, fees, investment plans, and withdrawal options. Many residents of Chesterfield, MO 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. keeping your assets in your original 401(k) frees you from having to make rushed decisions about where to place your money, and you’re still free to roll over the funds any time you’d like.
However, it is important to note 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 daunting to manage several different retirement plans with numerous custodians. Withdrawal options can be limited and large amounts of your money will be withheld. You would not be able to take out a 401(k) loan. Correct Capital's retirement consultants can help you understand if sticking with your old 401(k) is right for you.
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2. Roll Over Your 401(k) to Your New Employer
If your new employer in Chesterfield, MO also offers a 401(k), most employers will permit you to roll over your 401(k) funds to their plan. You may consider this if the new plan’s features are preferable to the previous plan’s, including lower fees, better investment options, opportunities, guidance, or loan options. Also, you will not be required to withdraw required minimum distributions after you turn 72 as long as you are still in the workforce.
If you have company stock in your previous 401(k) portfolio, 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 not contain all the benefits of your previous one. A knowledgeable financial advisor will help you decide if keeping your 401(k) savings 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 started to move savings from a previous employer’s 401(k). If you already have an IRA, you can consider moving the money there for your 401(k) rollover. Depending on how you contributed to your 401(k) plan, you may roll money to a Traditional or a Roth IRA. This way, the tax status of your previous contributions stays the same.
Traditional IRA
Contributions made to a Traditional IRA may be tax-deductible. Your pre-tax money you contributed to your 401(k) will likely be put into a traditional IRA. Withdrawals from this account may be subject to taxes and an early withdrawal penalty. Upon turning 72, you will have to take out required minimum distributions regardless of whether or not you are still in the workforce.
Roth IRA
Money deposited into 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 Roth IRA money grows tax-free. Money you contributed to a Roth 401(k) account is typically rolled into a Roth IRA. At any time you can access the money you’ve invested without having to pay taxes, and if you maintain the account for at least 5 years and are 59 ½ years old, you do not pay taxes on your earnings. Different from Roth 401(k) contributions, there are no required minimum distributions in a Roth IRA.
While you may roll pre-tax money from your 401(k) plan into a Roth IRA, you would be “converting” pre-tax money into after-tax money, which means you would have to pay taxes on the money received into the Roth IRA.
You can start an IRA account with many banks or any brokerage firm in Chesterfield, MO, however they often vary in terms of 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 hardly ever advisable unless you are in serious 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 could 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 Chesterfield, MO
There are two different ways to actually move the funds in your 401(k):
- Direct rollover — In a direct rollover, your former 401(k) company will send a check directly to your new retirement account with instructions to put the money into the account you are rolling your funds into. Each firm 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 generally not advisable except under specific circumstances. Your Chesterfield, MO financial advisor will be able to help you determine which option is best.
Avoiding Common 401(k) Rollover Mistakes
Even for Chesterfield, MO residents with a good understanding of their finances, deciding on the best option for your 401(k) rollover can be complicated. The most common mistakes people make when considering their options include:
- Not considering a rollover — If you like many aspects of your current 401(k) plan, you may be better off sticking with it. But you would be doing yourself a disservice not to consider how a rollover could allow your money to grow more, or have tools and resources your current plan doesn't.
- 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 think it is a regular contribution that you might have to pay taxes on.
- Forgetting about your 401(k) — While this may sound strange, Americans accidentally abandoned over $7 billion in retirement savings in 2015. A new job brings a lot of life changes with it, but neglecting to do anything about your 401(k) could significantly reduce how much you put away for retirement.
- Forgetting about the same property rule — Any savings that you roll over must be the "same property." Meaning, you can't take a cash distribution from your 401(k), buy stock with it and move those assets into a new account. The IRS considers that taxable income, and if you're under 59½ you'll also be subject to a 10% early withdrawal penalty.
- Rolling over a required minimum distribution — There is no way to roll over an RMD. If you do, you will be subject to a 6% penalty tax on any excess amount.
- Not working with a financial advisor — Financial advisors will be able to help you choose the best plan for you and ensure the rollover goes as smoothly as possible.
Other services we offer in Chesterfield, MO include:
- Succession Planning
- Fiduciary Financial Advisor
- Company 401(k) Plans
- ESOP Advisor
- Self-Employed Retirement Plans
Speak to a 401(k) Rollover Advisor Today
Your unique situation will dictate which 401(k) option is best for you. Many people in Chesterfield, MO 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 built on trust, honesty, and integrity.
Call us today at 877-930-4015, contact us online, or schedule an appointment with our financial and retirement planning advisors to make the best decision for your 401(k) rollover. Call 877-930-4015 or reach out to our financial advisors in Chesterfield, MO today.
