401(k) Rollover in Edwardsville, IL. Changing jobs or careers is the start of a brand new, exciting chapter in your life. However, many Edwardsville, 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 Edwardsville,IL
There are a few different ways to handle your 401(k) rollover in Edwardsville, IL, and usually it takes knowledgeable financial planning and an experienced financial advisor to know which option is best for you. 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 belief that we’ll do what’s best for you. We offer objective, 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 Edwardsville, IL.
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, Edwardsville, IL 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 Edwardsville, 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 if you don’t rollover your old 401(k), you won’t be able to continue adding 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 several different recordkeepers. 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 decide if sticking with your old 401(k) is the best option for you.
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2. Roll Over Your 401(k) to Your New Employer
If your new employer in Edwardsville, IL also offers a 401(k), most of the time they will let you roll over your 401(k) savings to their plan. You may consider this if you prefer the new plan’s options to your 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 if you are still working.
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 the new account. 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 a 401(k) rollover or sticking with your previous plan is right 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’ve already opened an IRA, you can consider transferring the money 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 your previous contributions stays the same.
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 whether or not you are still in the workforce.
Roth IRA
Contributions to Roth IRAs are made with money you already paid taxes on, so there is no immediate 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 likely to be rolled into a Roth IRA. At any time you can take out the money you’ve invested without tax consequences, 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. Unlike 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 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 open an IRA with many banks or any brokerage firm in Edwardsville, IL, 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 final option is hardly ever 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 the account immediately.
Indirect vs. Direct 401(k) Rollovers in Edwardsville, IL
There are two ways to rollover 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 plan you are rolling your funds into. Each custodian is different, so the best first step is to reach out to your previous employer's 401(k) company to ask them how to proceed.
- 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 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 a good idea unless circumstances dictate you need money in the short term. Your Edwardsville, IL 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 Edwardsville, IL residents, a 401(k) rollover is not something most people have experience with. The most common pitfalls people make when considering their options are:
- Not weighing 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 account may 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 lot can come with moving to a new job, but neglecting to do anything about your 401(k) could significantly impact what you have available for your golden rules.
- Not taking into account 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 bonds or another asset 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 — 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.
Other services we offer in Edwardsville, IL include:
- Succession Planning
- Fiduciary Financial Advisor
- Company 401(k) Plans
- ESOP Advisor
- Self-Employed Retirement Plans
Call a 401(k) Rollover Advisor Today
What to do with your 401(k) from your previous job depends on your unique situation. Many in Edwardsville, 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 based 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 Edwardsville, IL today.
