A 401K IRA rollover is actually a very simple process, but you need to make sure the simple steps are taken exactly right or you will end up losing a huge portion of your savings to an early withdrawal penalty and taxes.
When you cash out a retirement plan before you turn 59 and 1/2 years old you have to pay a 10% early withdrawal penalty, state taxes, and federal taxes on the money. Your income bracket and state tax percentage rate will vary the exact amounts this will all amount to, but this can easily add up to thirty to forty percent of your retirement fund. When you go to transfer things you want to make sure that you don't accidentally end up cashing out so that you don't lose any of your savings.
The first thing you need to know about doing this is that it can't be done at anytime. You are free to do whatever you want with your plan after you turn 59 years and 6 months old, and the only other time you have the opportunity to move funds is immediately after leaving a job. When you leave a job you can move your plan to your new employers plan, you can leave the money where it is, you can cash out (with penalties), or you can do a 401k IRA rollover.
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When you go to do the transfer you need to make sure the money goes directly to the independent retirement account and does not come to you in the form of a check. This happens often, and can easily end up looking to the government as though you cashed out your account. You'll want to select a company to handle your IRA first, and then set things up with them and your former employer to handle the direct transfer.
Another important fact to note is to make sure that if you have a traditional 401K plan that you set up a traditional IRA instead of a Roth account. Traditional accounts invest from your pretax income, where as Roth accounts use money that's already been taxed. This means that with a traditional account you will pay your taxes when you withdraw, whereas with a Roth account you pay your taxes before putting the money in.
In summary, to have a smooth 401K IRA rollover you simply need to make sure things are transferred smoothly and avoid withdrawing any funds.
When you cash out a retirement plan before you turn 59 and 1/2 years old you have to pay a 10% early withdrawal penalty, state taxes, and federal taxes on the money. Your income bracket and state tax percentage rate will vary the exact amounts this will all amount to, but this can easily add up to thirty to forty percent of your retirement fund. When you go to transfer things you want to make sure that you don't accidentally end up cashing out so that you don't lose any of your savings.
The first thing you need to know about doing this is that it can't be done at anytime. You are free to do whatever you want with your plan after you turn 59 years and 6 months old, and the only other time you have the opportunity to move funds is immediately after leaving a job. When you leave a job you can move your plan to your new employers plan, you can leave the money where it is, you can cash out (with penalties), or you can do a 401k IRA rollover.
<
When you go to do the transfer you need to make sure the money goes directly to the independent retirement account and does not come to you in the form of a check. This happens often, and can easily end up looking to the government as though you cashed out your account. You'll want to select a company to handle your IRA first, and then set things up with them and your former employer to handle the direct transfer.
Another important fact to note is to make sure that if you have a traditional 401K plan that you set up a traditional IRA instead of a Roth account. Traditional accounts invest from your pretax income, where as Roth accounts use money that's already been taxed. This means that with a traditional account you will pay your taxes when you withdraw, whereas with a Roth account you pay your taxes before putting the money in.
In summary, to have a smooth 401K IRA rollover you simply need to make sure things are transferred smoothly and avoid withdrawing any funds.
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