401(k) Rollover in Lake St. Louis, MO. Changing jobs or careers is the start of a brand new, exciting chapter in your life. However, many Lake St. Louis, MO residents wonder what the best options are for their 401(k) with their previous employer. Managing multiple retirement savings accounts can be complex and a pain in the neck.
401(k) Rollover in Lake St. Louis,MO
There are a few different ways to handle your 401(k) rollover in Lake St. Louis, MO, and oftentimes it takes knowledgeable financial planning and a savvy financial advisor to know which option is best for you. Correct Capital is a privately owned 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 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 877-930-4015 or contact us online to learn more about 401(k) rollover options in Lake St. Louis, 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), many Lake St. Louis, MO companies permit 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 Lake St. Louis, 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 roll over 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 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 daunting to oversee 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 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 Lake St. Louis, MO also offers a 401(k), most employers will allow you to roll over your 401(k) savings 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, required minimum distributions may be delayed even after you turn 72 if you are still working.
If the benefits with your previous 401(k) included company stock, you may require special financial planning needs when rolling over your 401(k) to a new employer. 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 you should stick with your previous plan or roll over your 401(k) to your new employer.
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 former employer’s 401(k). If you’ve already opened an IRA, you can consider transferring the savings 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, you maintain your tax status with the money you have contributed.
Traditional IRA
Money deposited into a Traditional IRA are considered to be pre-tax money. 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. After turning 72, you will be obligated to take out 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 immediate tax benefit. The benefit is that Roth IRA money grows tax-free. Money you contributed to a Roth 401(k) account is typically rolled into a Roth IRA. At any time you can take out 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 start an IRA account with many banks or any brokerage firm in Lake St. Louis, MO, 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 one that suits your needs.
4. Cash Out.
The fourth option is rarely advisable unless you are in desperate 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 could result in a large amount of your withdrawal 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 your pocket immediately.
Indirect vs. Direct 401(k) Rollovers in Lake St. Louis, 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 IRA or 401(k) you are rolling your funds into. 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 funds directly into your new account. This is also known as 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 usually not advisable unless circumstances dictate you need money in the short term. Your Lake St. Louis, MO financial advisor will help you understand what the best way to proceed is.
Avoiding Common 401(k) Rollover Pitfalls
Even for Lake St. Louis, MO residents with a good grasp of their finances, 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 weighing all your options — If you like some aspects of your current 401(k) plan, you may be better off sticking with it. But you would not longer be able to contribute to it, and a new account may offer other benefits that are not offered by your current plan.
- Not opening a new account first — If you do open up an IRA or new 401(k), make sure that the new account is already open, and that your new custodian is expecting a rollover. If they get a check when they aren't expecting a rollover, they may think it is a regular contribution that could be subject to taxes.
- Forgetting about your 401(k) — While you might be surprised that people lose track of their retirement savings, Americans accidentally abandoned $7.7 billion in retirement savings in 2015. A new job brings a lot of life changes with it, but neglecting to do anything about your 401(k) could significantly impact how much you put away for retirement.
- 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 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 also be subject to a 10% early withdrawal penalty.
- Rolling over a required minimum distribution — You are not allowed to roll over an RMD. If you do, you will have to pay a 6% excess IRA contribution tax.
- Not working with 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 assist Lake St. Louis, MO residents with:
- Succession Planning
- Fiduciary Financial Advisor
- Company 401(k) Plans
- ESOP Advisor
- Self-Employed Retirement Plans
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 Lake St. Louis, 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 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 Lake St. Louis, MO today.
