401(k) Rollover in Kirkwood, MO. Starting a new job is an exciting time that can present you with new challenges and opportunities. However, it’s often difficult for Kirkwood, MO residents to know what to do with their existing 401(k) savings. Managing multiple retirement savings accounts can be complex and a pain in the neck.
401(k) Rollover in Kirkwood,MO
There are several options for handling your 401(k) rollover in Kirkwood, MO, and oftentimes it takes trustworthy financial planning and an experienced 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 objective, 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 Kirkwood, MO.
Generally speaking, 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 Kirkwood, MO 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 Kirkwood, 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 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, 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 roll over 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 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 a hassle 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 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 Kirkwood, MO also offers a 401(k), most of the time they will allow you to 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 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 a new employer. The 401(k) plan with your new employer may not contain all the benefits of your previous one. 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 is an abbreviation for Individual Retirement Account. A Rollover IRA is an account started to move money 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 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 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. Upon turning 72, you will be required to take out required minimum distributions regardless of your status in the workforce.
Money deposited into Roth IRAs are made with money you already paid taxes on, so there is no tax benefit at the time the contributions are made. 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 access the contributions you make without having to pay taxes, 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. Contrary to 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 Kirkwood, 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 the best fit for you.
4. Cash Out.
The fourth option is rarely 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 may result in a large amount of your savings going towards taxes and not into your pocket. 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 Kirkwood, MO
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 savings into. Each firm is different, 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 Kirkwood, MO financial advisor will help you understand what the best way to proceed is.
Avoiding Common 401(k) Rollover Pitfalls
For even the most financially literate Kirkwood, MO residents, a 401(k) rollover is not something most people have experience with. The most common mistakes you should avoid are:
- Not considering a rollover — If you like some aspects of 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 have tools and resources your current plan doesn't.
- Not opening a new account first — If you do rollover your 401(k), it's important 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 think it is 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 lost 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 reduce how much you put away for retirement.
- Forgetting about 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 move those 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 — 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 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 Kirkwood, MO:
- 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
Speak to 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 Kirkwood, 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 great amount of investment research that we’ll share with you. We’re based 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 Kirkwood, MO today.