What you need to know about a 401(k) rollover for retirement savings

When retirement knocks on your door, you’ll have decisions to make. One such choice is what to do with the 401(k) plan you have through your current employer. You’ll have a couple of avenues to choose from, including a popular option you’ve likely heard before: rollover to an individual retirement account (IRA). Here’s a basic introduction to what investment options you’ll likely face when you’re ready to rollover your 401(k).

You have choices

If you have assets in an old 401(k) plan you have four choices for what to do with your plan assets:

  • Rollover your assets to a Traditional IRA.
  • Rollover to your new 401(k) plan if available and permitted by the plan.
  • Leave your assets in your 401(k) plan, if permitted by the old plan.
  • Take all the money at once. If you chose this option, 20 percent will automatically be withheld for income taxes, if they write you a check. If you do not deposit that check into a new IRA account within 60 days, you will be subject to a 10 percent early distribution penalty.

Your choice will depend on fees and expenses, level of service, investment options, the presence of employer stock, taxes and your comfort with having your assets in an IRA rather than an employer sponsored plan. A common choice is a rollover to an IRA.

Why choose a rollover to an IRA?

Rollovers are popular for people during their career as well as at retirement. Choosing to rollover assets to an IRA will enable you to:

  • Consolidate your retirement funds;
  • Preserve the tax-advantaged status of your retirement assets;
  • Broaden your investment choices
  • Find a new home for your retirement savings when a rollover to another 401(k) plan is not available
  • Avoid administrative fees associated with employer plans.

There may be other reasons, as well. Perhaps you want to take a more active approach to your retirement investing or you want professional management. Either way a rollover to an IRA can make it easy.

How to rollover

Moving your 401(k) assets to an IRA is simple:

  • Open an IRA at your credit union or bank.
  • Contact your employer to request a direct rollover distribution to the institution holding your new IRA.
  • Direct the investment of the transfer yourself or have a professional direct and manage it.

No matter which rollover option you choose, be sure to make a decision. Otherwise you might receive a check payable to you. This would create a tax obligation and possibly trigger penalties if funds are not deposited into your IRA within 60 days.

Rollovers are easy. Consider your needs and weigh the pros and cons to make a choice that works best for you.

Article provided by Local Government Federal Credit Union.

The advice provided is for informational purposes only. Contact a financial advisor for additional guidance.