401(k) Rollover in Columbia, IL. Starting a new job is an exciting time that can present you with new challenges and opportunities. However, many Columbia, IL residents wonder what the best options are for 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 Columbia,IL
There are several options for handling your 401(k) rollover in Columbia, IL, and oftentimes it takes knowledgeable financial planning and an experienced financial advisor to know which option is best for you. Correct Capital is a privately owned firm whose advisors hold themselves to the fiduciary standard. This means our only concern is making sure your financial future and planning needs are met. 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 877-930-4015 or contact us online to learn more about 401(k) rollover options in Columbia, 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), most, but not all, Columbia, IL 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 Columbia, 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 keep them where they are instead of a 401(k) rollover. 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 move the funds at some point in the future.
However, it is important to note that if you don’t rollover your old 401(k), you won’t be able to continue adding 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 several different 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 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 job in Columbia, IL also offers a 401(k), most employers will allow you to roll over your 401(k) assets 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, insight, 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 the benefits with your previous 401(k) included company stock, you may have special financial planning needs when rolling over your 401(k) to the new account. The 401(k) plan with your new employer may also contain higher fees or less diverse investment options. A knowledgeable financial advisor will help you decide if a 401(k) rollover or sticking with your previous plan is right for you.
3. Open a Rollover IRA
IRA stands for Individual Retirement Account. A Rollover IRA is an account started to move funds from a former 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, you may roll money to a Traditional or a Roth IRA. This way, the tax status of the money you already invested is not affected.
Traditional IRA
Contributions made to a Traditional IRA are considered to be pre-tax money. Your pre-tax money you paid into 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. After turning 72, you will have to withdraw required minimum distributions regardless of your status in the workforce.
Roth IRA
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 Roth IRA money grows tax-free. Money you contributed to a Roth 401(k) account is usually rolled into a Roth IRA. At any time you can withdraw the contributions you make without tax consequences, and your earnings are not taxed if you keep your account for at least 5 years, and are at least 59 ½ when the money is withdrawn. Unlike 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 open an IRA with many banks or any brokerage firm in Columbia, 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 what’s right for you.
4. Cash Out.
This final option is seldom advisable unless you are in urgent 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 potentially 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 Columbia, IL
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 custodian has its own way of doing things, 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 called a 60-day rollover because you need to redeposit the money within 60 days in order to avoid paying income taxes and early withdrawal penalties.
Like cashing out a 401(k), an indirect rollover is generally not advisable unless circumstances dictate you need money in the short term. Your Columbia, IL financial advisor will be able to help you determine which option is best.
Avoiding Common 401(k) Rollover Pitfalls
Even for Columbia, IL residents with a good grasp of their finances, deciding what 401(k) rollover options is best for you isn't easy. The most common mistakes you should avoid are:
- Not considering all your options — If you like some aspects of 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 plan 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 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 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 lost $7.7 billion in retirement savings in 2015. A new job brings a lot of life changes with it, but accidentally leaving behind your savings could significantly reduce what you have available for your golden rules.
- Not taking into account the same property rule — The funds 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 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% penalty tax on any excess amount.
- Not speaking to 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.
We also offer a full range of other financial services in Columbia, IL:
- 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
Call a 401(k) Rollover Advisor Today
Your unique situation will dictate which 401(k) option is best for you. Many in Columbia, 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 vast array of investment research that we’ll share with you. We’re founded 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 decide how to best manage your 401(k) rollover. Call 877-930-4015 or reach out to our financial advisors in Columbia, IL today.
