401(k) Rollover in Webster Groves, MO. Starting a new job is an exciting time that can present you with new challenges and opportunities. However, many Webster Groves, MO residents wonder what the best options are for their existing 401(k) savings. Managing multiple retirement savings accounts can be complex and a pain in the neck.
401(k) Rollover in Webster Groves,MO
There are several options for handling your 401(k) rollover in Webster Groves, MO, and usually it takes trustworthy financial planning and an experienced financial advisor to know how to best deal with your savings. Correct Capital is a privately owned firm with fiduciary advisors. This means any advice we give is based on what we believe is best for your financial needs. 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 Webster Groves, MO.
Normally, 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 Webster Groves, MO companies permit you to keep your accrued savings in their plan. The funds stay subject to the same rules, fees, investment plans, and withdrawal options. Many people in Webster Groves, 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, 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 move 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 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 oversee 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 choose whether you should stay with your old 401(k) or not.
2. Roll Over Your 401(k) to Your New Employer
If your new position in Webster Groves, MO also offers a 401(k), most of the time they will permit you to roll over your 401(k) savings 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, guidance, or loan options. Also, you will not be required to withdraw required minimum distributions after you turn 72 as long as 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 the new account. The 401(k) plan with your new employer may also contain higher fees or less diverse investment options. A knowledgeable financial advisor will help you decide if a 401(k) rollover or sticking with your previous plan is right for you.
3. Open a Rollover IRA
IRA stands for Individual Retirement Account. A Rollover IRA is an account opened to move funds from a former employer’s 401(k). If you already have an IRA, you can consider moving the funds 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, the tax status of the money you already invested is not affected.
Traditional IRA
Contributions made to 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. When you turn 72, you will be obligated to withdraw required minimum distributions regardless of whether or not you are still in the workforce.
Roth IRA
Contributions to Roth IRAs are made with after-tax money, so there is no tax benefit at the time the contributions are made. The benefit is that you do not pay taxes when you withdraw the money. Money you contributed to a Roth 401(k) account is often rolled into a Roth IRA. At any time you can access 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, 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 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 start an IRA account with many banks or any brokerage firm in Webster Groves, 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 the best choice 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 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 your pocket immediately.
Indirect vs. Direct 401(k) Rollovers in Webster Groves, 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 your new account. Each custodian 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, the funds are paid directly to you, and you deposit the savings directly into your new account. This is also known 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 now. Your Webster Groves, MO financial advisor will help you understand what the best way to proceed is.
Avoiding Common 401(k) Rollover Mistakes
Even for Webster Groves, MO residents with a solid grasp of their finances, a 401(k) rollover is not something most people have experience with. The most common pitfalls you should avoid include:
- Not considering a rollover — 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 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 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.
- Neglecting your old 401(k) — While this may sound strange, Americans lost over $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 reduce 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 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 an RMD. If you do, you will have to pay a 6% penalty tax on any excess amount.
- Not consulting 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 Webster Groves, MO:
- Succession Planning
- Fiduciary Financial Advisor
- Company 401(k) Plans
- ESOP Advisor
- Self-Employed Retirement Plans
Contact a 401(k) Rollover Advisor Today
Your unique situation will dictate which 401(k) option is best for you. Many in Webster Groves, 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 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 make the best decision for your 401(k) rollover. Call 877-930-4015 or reach out to our financial advisors in Webster Groves, MO today.
