401(k) Rollover in Frontenac, MO. Starting a new job is an exciting time that can present you with new challenges and opportunities. However, many Frontenac, MO residents wonder what the best options are for their existing 401(k) plan. Managing multiple retirement savings accounts can be complex and take more time than many people are willing to put in.
401(k) Rollover in Frontenac,MO
There are a few different ways to handle your 401(k) rollover in Frontenac, MO, and oftentimes it takes trustworthy financial planning and a savvy financial advisor to know which option is best for you. Correct Capital is an independent advisory 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 impartial, 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 Frontenac, MO.
Normally, 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), the majority of Frontenac, 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 employees in Frontenac, 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, per federal law, 401(k)s are generally protected against claims by creditors. 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 should be mentioned 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 complicated to manage several different retirement plans with numerous 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 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 employer in Frontenac, MO also offers a 401(k), most of the time they will permit you to roll over your 401(k) funds to their plan. This might be the best option if you prefer the new plan’s options to your previous plan’s, 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 as long as you are still in the workforce.
If you have company stock in your previous 401(k) portfolio, 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 not contain all the benefits of your previous one. A knowledgeable financial advisor will help you decide if your personal needs dictate that 401(k) rollover or keeping your funds in your previous plan 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 funds 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 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
Money deposited into a Traditional IRA may be tax-deductible. Your 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. When you turn 72, you will be obligated to withdraw required minimum distributions regardless of your status in the workforce.
Roth IRA
Contributions to Roth IRAs are made with money you already paid taxes on, so there is no tax benefit until the money is withdrawn. 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 withdraw the contributions you make without tax consequences, and you will not pay taxes on your earnings if you are 59 ½ years old and wait at least 5 years to withdraw any funds. 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 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 Frontenac, MO, 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 one that suits your needs.
4. Cash Out.
This last option is almost never advisable unless you are in grave 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 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 Frontenac, MO
There are two different ways to actually move the money in 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 your new account. Each custodian 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 savings from your account, and then you deposit the funds directly into your new account. This is also called 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 generally not advisable except under specific circumstances. Your Frontenac, MO financial advisor will be able to help you determine which option is best.
Avoiding Common 401(k) Rollover Pitfalls
For even the most financially literate Frontenac, MO residents, deciding what 401(k) rollover options is best for you isn't easy. The most common pitfalls people make when considering their options include:
- Not considering all your options — If you like 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 your current plan doesn't.
- 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 by surprise, they may mistake it for a regular contribution that you might have to pay taxes on.
- Forgetting about your 401(k) — While you might be surprised that people 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 savings could significantly impact what you have available for your golden rules.
- Forgetting about the same property rule — The property your new account receives must be the property that was rolled over. Meaning, you can't withdraw cash 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 less than 59½ you'll have to pay a 10% early withdrawal penalty.
- Rolling over a required minimum distribution — There is no way to roll over a required minimum distribution. If you do, you will have to pay a 6% penalty tax on any excess amount.
- Not working with a retirement planner — Financial advisors deal with investment, tax planning, and other 401(k) rollover considerations every day.
We also offer a full range of other financial services in Frontenac, MO:
- Succession Planning
- Fiduciary Financial Advisor
- Company 401(k) Plans
- ESOP Advisor
- Self-Employed Retirement Plans
Contact a 401(k) Rollover Advisor Today
What to do with your 401(k) from your previous job depends on your unique situation. Many people in Frontenac, 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 decide how to best manage your 401(k) rollover. Call 877-930-4015 or reach out to our financial advisors in Frontenac, MO today.
