Starting a new job? Leaving an old job? Have you contributed to a 401k plan?


Posted on 10th December 2010 by Rita in 401k |IRA |Retirement and Estate Planning

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Retirement Options

If so… you have four options when leaving an employer where you have contributed to their 401k plan.

  1. Keep it in your current plan

  2. Transfer current 401k plan to new 401k plan with new employer

  3. Cash out your 401k

  4. Rollover – Move it to another qualified retirement account.

Options in a little more detail:

  1. Keeping your funds in your current 401k plan. If your previous employer allows this and your current plan has excellent investment options and low fees – then this could work for you. Usually this is not the case for most people and not necessarily your best option.

  2. Complete a 401k transfer to new employer’s 401k plan. Of course this option only works when you have another job offer before leaving your current employer. In some cases, a rollover IRA may be the best option as it is simple.

  3. Cashing out your 401k typically, not a good idea. It may be one of the worse things you could do with your 401k funds if you are not 59 1/2. When you cash out on your 401k before the age of 59 1/2, you will be taxed for this early withdrawal along with a possible 10% early withdrawal penalty. Here is an example for you to visualize this … Assuming the effective combined federal and state tax rate is 35%, a $100,000 cashed out 401k plan will cost you $45,000 in taxes and penalties. Wow! Leaving you with $55,000.

  4. Roll your 401k to an IRA or Roth IRA – Usually your BEST option to take. And one of the great parts, is you avoid penalties and tax’s while growing your savings tax-free. All transactions and earnings within the IRA have no tax impact with traditional IRAs since they are tax sheltered; earnings are not taxed until withdrawn. Traditional IRA contributions are usually tax-deductible in the year of contribution. Along with taking advantage of lower investment expenses and gaining access to a wider variety of investment options, you also have the option of converting your 401k to a Roth IRA, which allows your retirement savings to grow tax-free.

How To Do a 401k Rollover To IRA?

  1. Open an Individual Retirement Account (IRA) with any Financial institution that offers an IRA – like North Coast Life.

  2. Inform your employer or previous employer, you would like to do a 401k rollover to IRA. Note: it is a good idea to make sure your employer makes the check payable to the investment company you choose. Called a trustee-to-trustee transfer, which could help you avoid the automatic 20% tax withholding.

  3. Make sure the check from your 401k is deposited into your chosen financial institution IRA within 60 days of the date it is sent out.

You have made a GREAT decision to transfer your 401k into an IRA fund rather than pay the taxes required on a 401k withdrawal. Rolling your 401k plan into an IRA is one of the smartest things you can do with a retirement plan. 


Note: This blog is designed for general information purposes only. All information presented on this site should not be interpreted as legal advice and the author assumes no responsibility or liability for the actions taken or not taken by the readers based upon such information. For legal and tax advice contact your attorney or tax adviser.

Rita Sollie, Direct Insurance Representative with North Coast Life Insurance Company (NCL). No gimmicks or schemes here, just genuine and honest service. We don’t sell insurance, we solve problems. I welcome the opportunity to show you what NCL can do for your Life Insurance and Financial needs.
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