Need to Rollover Your 401k? 6 Easy Steps and The 5 Biggest 401k Rollover Mistakes To Avoid

Here are some pointers on how to rollover your 401k. Please pay particular attention to the five biggest mistakes in a 401k rollover as they could mean thousands of dollars in penalties and taxes.

Need to Rollover Your 401k? 6 Easy Steps
By John Beckstead

I’ve helped many people over the past fifteen years as a Financial Advisor, and I’ve found that one of the things my clients hate to do is contact their old employer and Rollover their 401k. Here is a quick 6 step guide to help you take control of your retirement and get your 401k working for who’s most important, you.

  1. Decide where you want to rollover your 401k. You can take it as a distribution and be subject to taxes and penalties. You can roll it over to your new employer, but check with the new plan administrator to see if the plan accepts rollovers. If you want more control and advice it could go to an IRA rollover account that you or an investment advisor could manage.
  2. Consult your tax advisor before selecting a rollover to find out if this is the best option for you. 401k Rollovers can have long-term impacts on retirement planning and tax liabilities.
  3. Your old employer will have a document you will need to complete that describes how you would like to rollover your 401k. Typically the plan administrator will have this document. In addition, most plans will require written spousal consent to Rollover.
  4. Review your 401k statement and plan document so you know how much money you have and how much is vested. In addition, the plan document will explain rollover rules, rollover options, consequences of choosing an indirect rollover.
  5. If you choose a direct rollover , make sure a check is sent from your old employer’s plan to the new employer’s plan, the IRA custodian.
  6. If you choose an indirect 401k rollover and receive the funds personally, make SURE you roll over the funds within the 60 day window to an IRA or to another employer’s plan to avoid taxes and penalties. Generally you should avoid a distribution directly to you to avoid the 20 percent federal withholding requirement.

Please consult with a financial advisor so you don’t incur taxes and penalties when you rollover your 401k.

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5 Biggest 401k Rollover Mistakes – Are You at Risk?
By Ed Gosselin

Here’s a look at the 5 biggest 401k rollover mistakes. Some of them are very common and can be costly, either in terms of losing your account’s tax sheltered status or in losing out on profits.

Remember, these things have happened to other people.

So, they could happen to you.

#1. You fail to redeposit the funds within 60 days.

The check could get lost in the mail. You could have some kind of family emergency. You might be in the process of moving and somehow lose the check. All of those things have happened to account holders at one time or another. Something interferes with them finding a new account provider and the next thing they know, they are in trouble with the IRS.

Failing to open a new account and redeposit the funds within 60 days is one of the 5 biggest 401k rollover mistakes, because, when if it happens, the entire value of the account will be taxed as regular income for that year.

The IRS will make exceptions, in some cases. For instance, victims of hurricane Katrina were given a full year to redeposit the funds. But, unless there is a blanket exemption like that one, the process is long and drawn out. The best thing to do is to pick a new account holder, before you initiate a roll-over and take precautions to insure that the check is deposited within the 60 day period.

#2. You take more than one roll-over in a 12 month period.

That does not mean more than once per calendar year. That means more than once during “any” 12 month period. I am personally familiar with an investor that rolled over his account, found himself happy with the results, but then found another investment with higher returns. He initiated another roll over 11 months after the first.

That is one of the 5 biggest 401k rollover mistakes, because the funds must be included with your income for that year.

In other words, you pay more taxes.

#3. You choose to take a roll-over instead of a transfer.

A transfer and a rollover are different transaction types. For people that have already decided on a new account provider, one of the 5 biggest 401k rollover mistakes is simply to take a rollover, instead of making a transfer.

When you are not the “middleman”, the first two mistakes cannot happen.

#4. You put the funds into a Roth, instead of a traditional account.

This is only a mistake if you are aware that you will need to include the account value in your annual income tax return. Contributions to a regular 401K are not taxed as regular income for that year.

Contributions to a Roth are, but qualified distributions from within a Roth are never taxed. Learn the rules, before you consider going from a traditional account to a Roth.

#5. You fail to consider all of your investment options.

Failing to consider all of your investment options, which could include self-directing into real estate, may be the biggest of the 5 biggest 401k rollover mistakes.

If your account is not earning 12% per year or more, then you might want to try something different.

To get started on accomplishing your retirement goals, choose a real estate turnkey company to invest your self-directed IRA money in real estate.

This is the best investment strategy considering today’s economic environment for building a secure financial future.

Isn’t your financial future worth it?

Ed Gosselin researches retirement investment strategies while advocating IRA real estate turnkey solutions as a means of diversifying your portfolio while maximizing your returns.

Learn more about retirement investment strategies to accomplish your financial goals, by visiting his website

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