401(k) Rollover in St. Clair County, IL. Changing jobs or careers is the start of a brand new, exciting chapter in your life. However, many St. Clair County, 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 St. Clair County,IL
There are a few different ways to handle your 401(k) rollover in St. Clair County, IL, and usually it takes sound financial planning and an experienced financial advisor to know how to best deal with your savings. Correct Capital is an independent advisory firm with fiduciary advisors. This means we work in your best interest to make sure your money is working for you as you want it to. Our business is built on trust and your belief that we’ll do what’s best for you. We offer impartial, 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 St. Clair County, IL.
Typically, 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 St. Clair County, IL 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 St. Clair County, 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 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, federal law dictates that 401(k)s creditors cannot make claims against 401(k)s. 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 transfer the funds whenever you’d like.
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 a hassle to oversee 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.
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2. Roll Over Your 401(k) to Your New Employer
If your new job in St. Clair County, IL also offers a 401(k), most employers 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, insight, or loan options. Also, you will not be required to withdraw required minimum distributions after you turn 72 if you are still in the workforce.
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 not contain all the benefits of your previous one. An experienced financial advisor will help you decide if keeping your 401(k) savings 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 used to move funds from a former 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, it may be best to roll money to a Traditional or a Roth IRA. This way, you maintain your tax status with the money you have contributed.
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) 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 have to withdraw required minimum distributions regardless of whether or not you are still in the workforce.
Roth IRA
Savings deposited into 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 usually rolled into a Roth IRA. At any time you can access the money you’ve invested 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 open an IRA with many banks or any brokerage firm in St. Clair County, 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 what’s right for you.
4. Cash Out.
This final option is almost never advisable unless you are in grave 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 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 St. Clair County, 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 IRA or 401(k) you are rolling your savings into. Each firm has its own way of doing things, 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 referred to 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 generally not a good idea except under specific circumstances. Your St. Clair County, IL financial advisor will be able to help you determine which option is best.
Avoiding Common 401(k) Rollover Mistakes
Even for St. Clair County, IL residents with a solid understanding of their finances, deciding what 401(k) rollover options is best for you isn't easy. The most common pitfalls you should avoid 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 be doing yourself a disservice not to consider how a rollover could allow your money to grow more, or offer other benefits that are not offered by your current plan.
- 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 when they aren't expecting a rollover, they may mistake it for a regular contribution that could be subject to taxes.
- Neglecting your old 401(k) — While this may sound strange, 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 reduce 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 take a cash distribution from your 401(k), buy assets with it and deposit those new 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 be subject to a 6% penalty tax on any excess amount.
- Not consulting with a financial advisor — Financial advisors deal with investment, tax planning, and other 401(k) rollover considerations every day.
We also assist St. Clair County, IL residents with:
- Succession Planning
- Fiduciary Financial Advisor
- Company 401(k) Plans
- ESOP Advisor
- Self-Employed Retirement Plans
Call a 401(k) Rollover Advisor Today
Your unique situation will dictate which 401(k) option is best for you. Many people in St. Clair County, 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 make the best decision for your 401(k) rollover. Call 877-930-4015 or reach out to our financial advisors in St. Clair County, IL today.