401(k) Rollover in Fairview Heights, IL. Changing jobs or careers is the start of a brand new, exciting chapter in your life. However, many Fairview Heights, IL residents wonder what the best options are for their 401(k) with their previous employer. Managing multiple retirement savings accounts can be complex and take more time than many people are willing to put in.
401(k) Rollover in Fairview Heights,IL
There are several options for handling your 401(k) rollover in Fairview Heights, IL, 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 our only concern is making sure your financial future and planning needs are met. Our business is built on trust and your belief 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 Fairview Heights, IL.
Generally speaking, 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 Fairview Heights, 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 people in Fairview Heights, 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, per federal law, 401(k)s are generally protected against claims by creditors. 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 whenever you’d like.
However, it should be mentioned that if you don’t rollover your old 401(k), you won’t be able to add to your savings, which may have an impact 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 complicated to manage several different retirement plans with numerous recordkeepers. 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 decide if sticking with your old 401(k) is the best option for you.
2. Roll Over Your 401(k) to Your New Employer
If your new job in Fairview Heights, IL also offers a 401(k), most of the time they will let you roll over your 401(k) assets to their plan. This might be the best option if the new plan’s features are preferable to the previous plan’s, including lower fees, better investment options, opportunities, advice, or loan options. Also, required minimum distributions may be delayed even after you turn 72 if you are still working.
If part of your previous 401(k) portfolio includes 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 trustworthy 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 stands for Individual Retirement Account. A Rollover IRA is an account started to move money from a previous employer’s 401(k). If you’ve already opened 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.
Money deposited into a Traditional IRA are considered to be pre-tax money. 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. After turning 72, you will be required to withdraw required minimum distributions regardless of your status in the workforce.
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 usually rolled into a Roth IRA. At any time you can withdraw 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 Fairview Heights, IL, however many come with varying 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.
The fourth option is rarely advisable unless you are in urgent 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 might result in a large amount of your funds 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 Fairview Heights, IL
There are two different ways to actually move the money 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 your new account. 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 savings directly into your IRA or new 401(k). This is also referred to as 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 typically not advisable unless circumstances dictate you need money in the short term. Your Fairview Heights, IL financial advisor will help you understand what the best way to proceed is.
Avoiding Common 401(k) Rollover Mistakes
For even the most financially literate Fairview Heights, IL residents, deciding what 401(k) rollover options is best for you isn't easy. The most common mistakes people make when considering their options are:
- Not weighing all your options — If you like your current 401(k) plan, it may make sense to leave your savings there. But you would be doing yourself a disservice not to consider how a rollover could allow your money to grow more, or offer other benefits your current plan doesn't.
- Not opening a new account first — If you do rollover your 401(k), it's important that the new account is already open, and that your new custodian is expecting a rollover. If they get a check by surprise, 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 lost 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 how much you put away for retirement.
- Not taking into account the same property rule — The funds you roll over must be the "same property." Meaning, you can't withdraw cash 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 less than 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% 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.
We also offer a full range of other financial services in Fairview Heights, IL:
- 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
- Retirement Planning
Call 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 Fairview Heights, 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 provide you with. 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 decide how to best manage your 401(k) rollover. Call 314-930-401K or reach out to our financial advisors in Fairview Heights, IL today.