401(k) Rollover in Clayton, MO. Changing jobs or careers is the start of a brand new, exciting chapter in your life. However, many Clayton, MO residents wonder what the best options are for their 401(k) with their previous employer. Managing multiple retirement savings accounts can be stressful without a team of expert and honest financial advisors.
401(k) Rollover in Clayton,MO
There are a few different ways to handle your 401(k) rollover in Clayton, MO, and oftentimes it takes knowledgeable financial planning and a savvy financial advisor to know how to best deal with your savings. Correct Capital is an independent advisory firm with fiduciary advisors. This means any advice we give is based on what we believe is best for your financial needs. Our business is built on trust and your confidence that we’ll do what’s best for you. We offer unbiased, expert advice, and will never try to convince you of something we don’t believe in ourselves. Call us today at 314-930-401K or contact us online to learn more about 401(k) rollover options in Clayton, MO.
Typically, 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), many Clayton, MO companies allow you to keep your accrued savings in their plan. The funds stay subject to the same rules, fees, investment plans, and withdrawal options. Many people in Clayton, 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. 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 transfer the funds at some point in the future.
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 effect on your retirement planning. After the age of 72, you will be required to withdraw “required minimum distributions” from those 401(k) accounts you have at old employers. It can also be a hassle 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.
2. Roll Over Your 401(k) to Your New Employer
If your new employer in Clayton, MO also offers a 401(k), most employers will let you roll over your 401(k) funds to their plan. You may consider this if the new plan has better benefits than the previous plan, including lower fees, better investment options, opportunities, advice, or loan options. Also, you will not be required to withdraw required minimum distributions after you turn 72 if you are still in the workforce.
If part of your previous 401(k) portfolio includes 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 used to move money from a former employer’s 401(k). If you already have an IRA, you can consider moving the savings there for your 401(k) rollover. Depending on how you contributed to your 401(k) plan, it may be best to roll money to a Traditional or a Roth IRA. This way, you maintain your tax status with the money you have contributed.
Contributions made to a Traditional IRA may be tax-deductible. the pre-tax money you paid into 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. After turning 72, you will be required to take out required minimum distributions regardless of whether or not you are still in the workforce.
Contributions to Roth IRAs are made with after-tax money, so you’ll need to wait until the money is withdrawn to see a tax benefit. The benefit is that you do not pay taxes when you withdraw the money. Money you contributed to a Roth 401(k) account is typically rolled into a Roth IRA. At any time you can take out 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. Contrary to 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 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 Clayton, 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.
The fourth option is hardly ever advisable unless you are in serious need of money now. You will be subjected to a 20% federal tax, 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 withdrawal going towards taxes and not into your back account. 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 Clayton, MO
There are two ways to rollover your 401(k):
- Direct rollover — In a direct rollover, the custodian holding your 401(k) savings will send a check directly to your new retirement account with instructions to put the money into the plan you are rolling your funds into. Each firm follows a different procedure, 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, you withdraw the funds from your account, and then you deposit the savings directly into your IRA or new 401(k). This is also referred to as a 60-day rollover because the money needs to be deposited into the new account within 60 days in order to avoid paying income taxes and early withdrawal penalties.
Like cashing out a 401(k), an indirect rollover is usually not advisable unless circumstances dictate you need money now. Your Clayton, MO financial advisor will be able to help you determine which option is best.
Avoiding Common 401(k) Rollover Mistakes
For even the most financially literate Clayton, MO residents, a 401(k) rollover is not something most people have experience with. The most common mistakes people make when considering their options are:
- Not considering a rollover — If you like some aspects of your current 401(k) plan, you may be better off sticking with it. But you would not longer be able to contribute to it, and a new account may offer other benefits that are not offered by your current plan.
- Not opening a new account first — If you do rollover your 401(k), make sure that the new account is already open, and that your new custodian is expecting a rollover. If they get a check when they aren't expecting a rollover, they may think it is a regular contribution that could be subject to taxes.
- Neglecting your old 401(k) — While you might think it's hard to lose track of their retirement savings, Americans accidentally abandoned over $7 billion in retirement savings in 2015. A lot can come with moving to a new job, but accidentally leaving behind your retirement funds could significantly impact 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 assets with it and move those assets into a new account. If you do that, you would have to pay property tax, and if you're under 59½ you'll have to pay 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 have to pay a 6% excess IRA contribution tax.
- Not working with a retirement planner — 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 Clayton, MO include:
- 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
Call a 401(k) Rollover Advisor Today
Your unique situation will dictate which 401(k) option is best for you. Many people in Clayton, 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 314-930-401K, 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 314-930-401K or reach out to our financial advisors in Clayton, MO today.