Retirement :

Why Rollover –

These days, it’s not uncommon for individuals to hold several jobs during a career. Some companies will allow a departing employee to leave assets in the employer-sponsored retirement plan, but it’s rarely the best option.

When you leave a job, you may want to consider rolling your retirement plan money into a traditional IRA. But it’s critical that you follow the rules. If you simply accept a check from the company plan rather than arrange for the funds to be transferred directly between financial institutions, you could lose the tax-deferred status of the invested funds, and the company will withhold 20% of your vested account for taxes. You will also pay ordinary income taxes on the balance, plus a 10% federal income tax penalty if you are younger than 59 ½.

Retirement can seem a long way off as you face financial responsibilities today. Taking the time to understand the features and penalties associated with your employer-sponsored investment plan may help you build more of the funds you are sure to need in the future.

Good Reasons for a rollover

Managing your money in retirement presents certain challenges. Many people make it harder by leaving retirement assets scattered across various accounts. Partly because oftentimes people will leave their jobs abruptly and under adverse situations-they often forget or don’t follow thru on managing their 401K investments.

One way to simplify recordkeeping and gain greater control over your assets is to consolidate accounts using an IRA rollover.

A direct trustee-to trustee rollover allows you to move money from an employer-sponsored plan to a traditional IRA without jeopardizing the tax-deferred status of your savings. Keeping retirement assets in an IRA also offers some advantages over an employer-sponsored plan.

Some of these advantages include:

Expanding Your Options

With an IRA, you typically have a much wider selection of investments to choose from than you have with an employer-sponsored plan. Some employer plans, for example, may offer investment options from only one financial institution or mutual funds. The additional investment options available in an IRA may mean you can further diversify your portfolio and invest in better quality investment instruments. Diversification does not guarantee against loss; it is a method used to help manage investment risk.

Simplify the management by giving you control

With your retirement assets in a single account under your control, you will have less paperwork to manage and only one financial institution to contact when changing beneficiaries, taking withdrawals, or requesting other transactions. You also avoid the risk of paperwork getting lost should your former employer merge with another company or move.

Preserving your Tax Benefits

When you change jobs or retire, you may be tempted to cash out of your retirement plans. However, consider the consequences before taking such actions and misusing your hard earn savings. Distributions from qualified retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, you may be subject to an additional 10% federal income tax penalty. This means you could lose nearly half of your assets in tax penalties and income taxes.

You’ve worked hard to build your retirement savings. An IRA rollover can help you preserve the tax-advantaged status of your money and make it easier to manage retirement assets.

Although this is a great way to manage your prior pension and 401K savings, in a future article we will discuss why under most conditions a Roth IRA takes us to the next level of smarter investing. Until then get control of your money and rollover those 401Ks.