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Need to Rollover Your 401(k)? Here’s How You Do It.

Need to Rollover Your 401(k)? Here’s How You Do It.

May 14, 2021
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Need to Rollover Your 401(k)? Here’s How You Do It:

If you are changing jobs or even suffered a job loss resulting in this last year’s COVID-19 outbreak, we have the steps you need to consider when it comes to your retirement account.

So, the question is... “what should I do with my 401(k)?” If you leave a job or employer, you typically have four options when it comes to your retirement account, specifically your 401(k). 

None of the options below should be taken lightly, this is a big decision. You want to make sure you’re thinking in the long-term when it comes to your retirement account instead of what could benefit you in the present. One thing to know is that our team at Wehring Wealth Management is always here to offer advice and suggestions when it comes to rolling over your 401(k) and how it will affect the broader picture of your financial plan.

Option 1: Leave It with Your Previous Employer

You may choose to do nothing and leave your account in your previous employer’s 401(k) plan. However, if your account balance is under a certain amount, you need to be aware that your ex-employer may elect to distribute the funds to you.

There may be reasons to keep your 401(k) with your previous employer — such as investments that are low cost or have limited availability outside of the plan. Other reasons are to maintain certain creditor protections that are unique to qualified retirement plans, or to retain the ability to borrow from it, if the plan allows for such loans to ex-employees.2

The primary downside of this option is that you may forget about this old account and move onto a new chapter or several new employers in your lifetime, paying less attention to the ongoing management of it.

Option 2: Transfer to Your New Employer’s 401(k) Plan

If your current employer accepts the transfer of assets from a pre-existing 401(k), you may want to consider moving these assets to your new plan.

The primary benefits of transferring are the convenience of combining your assets, retaining their strong creditor protections, and keeping them accessible via the plan’s loan feature.

If the new plan has competitive investment options, you might prefer to transfer your account and make a full break with your last employer. This option does have the benefit of the account changing with you, allowing you to monitor the account more closely since you’ve chosen to roll it over to your current employer.

Option 3: Roll Over Assets to a Traditional/Individual Retirement Account (IRA)

Another choice is to roll assets over into a new or existing traditional IRA.³ It’s possible that a traditional IRA may provide some investment choices that may not exist in your new 401(k) plan.

The drawback to this approach may be less creditor protection and the loss of access to these funds via a 401(k)-loan feature.

Option 4: Cash Out the Account Value

You might be wondering if it’s possible to cash out your 401(k) when you leave one employer and start a whole new retirement plan with your new one. The answer is yes. You can do this but that doesn’t mean it’s the right decision. Typically, we recommend you choose one of the options above in order to keep your money invested and protected instead of paying an early withdrawal fee to get the cash value the account holds, considering special situations.

At Wehring Wealth Management, we are focused on your long-term financial goals and retirement account. We will assess your full financial plan before suggesting cashing out your retirement account to make sure it’s the right decision to protect the hard-earned money you've worked for to enjoy your golden years.

Each choice above offers advantages and disadvantages. Over the years, we’ve found the best financial decisions are the ones that consider all available options.

Reach out to the Wehring team if you have any questions regarding your IRA, 401(k) or retirement options you have available.

Keep in mind, this blog is for informational purposes only.

Under the SECURE Act, in most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 72. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.

  1. A 401(k) loan not paid is deemed a distribution, subject to income taxes and a 10% tax penalty if the account owner is under 59½. If the account owner switches jobs or gets laid off, any outstanding 401(k) loan balance becomes due by the time the person files his or her federal tax return. Prior to the 2017 Tax Cuts and Jobs Act, employees typically had to repay loans within 60 days of departure or face potential tax consequences.
  2. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act as long as you meet the earned-income requirement.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2021 FMG Suite.