401k Rollover School

When you decide you need a 401k rollover, there are several options available to you.

Take the money in cash

This is the worst option anyone can choose for a 401k rollover.  There are big tax consequences if you withdrawl your 401k before the age of 59 ½.  First you are charged at your tax rate based on your tax bracket.  Then you will be charged an additional 10 percent for early withdrawl.  That can cause a huge setback when trying to save for retirement.

Leave the money with your old employers 401k

This is a better option for a 401k rollover since you won’t be taxed or penalized for early withdrawl.  There are some drawbacks to this also.  First, it’s hard to stay diversified if you have multiple retirement accounts to manage.  Also, some employers only have 10 to 15 options for a 401k investment.  There are some better options to rollover your 401k.

Rollover your 401k into you new employers retirement plan

Almost all employers will allow you to rollover your old 401k account into their 401k plan.  This will avoid the multiple accounts issue and allows you to focus more on diversifying and reaching your investment goals.  It also avoid penalties and taxes for withdrawl.  But still, most employer do have a limited number of fund options which can hurt your overall investment compared to other investment options out there.

Rollover your 401k into a IRA or Roth IRA

For most people, you can rollover your 401k into a IRA or roth IRA, and it will be the best option available.  There are numerous advantages to a 401k rollover to IRA.  First, you will have more control and more investment options.  Second, you will have a better organized portfolio and will be able to get advice from a professional who knows how to reach your goals.

After deciding whether to rollover your 401k into a new employers account, an IRA, or roth IRA, you should be always tweaking your investment strategy to provide the highest rate of return on your money.  A 401k rollover is a very simple process and you can usually do this online with a professional investment company of your choice.