You may have a lot of questions when leaving one job for another. Anytime you make a career switch you will have many questions, and how do I close out a 401k account? Will probably be one of them. Although you can not close a 401k account until you leave your employer, once you do leave, you do have a few options.
As of 2011, the IRS gives you 60 days to make a choice as to what you will do with the funds before you start to incur taxes and penalties. Leading online broker ETrade has qualified retirement specialists on hand to assist you with closing out your 401k account, or you can speak with your plan administrator.
Your decision concerning your retirement funds will need to be based on a variety of factors. Carefully consider your investment objectives, risk-tolerance, age, and time frame for investing. Keep in mind that you can always leave your plan with your former employer, although this is not always recommended.
How Do I Closeout A 401k Account?: Steps To Closing Your 401k
If you have decided after careful consideration to withdrawal your funds from your 401k retirement account you need to contact the plan administrator from your previous employer’s 401k plan and request a close out distribution form.
You must then decide what you will be doing with the funds. You can rollover your 401k account to your current employer’s 401k plan or an IRA, or you can choose to withdrawal the funds. You must then tell your plan administrator what you have decided to to with the funds, which can be accomplished by filling out the appropriate boxes on your form.
How do I closeout a 401k account? Once you have send back your distribution closeout form to your plan’s administrator and it has been received with your instructions, the account will be closed. You may have some deadlines that you must meet depending on how your account was handled.
Deadlines And Other Considerations When Closing A 401k Account
The IRS has strict rules and regulations on retirement fund rollovers, and failure to comply with these rules and deadlines can result in hefty fees and penalties. If you are cashing out your 401k plan, you need to be aware of the taxes and fees associated with early withdrawals, as these can greatly affect the amount of money you are left with after they have been subtracted.
If you are performing an action other than a direct rollover – where the money is transferred directly from financial institution to financial institution and you never see it – and you are younger than 59½ you must be aware of these rules to avoid financial loss.
When you withdrawal funds funds from your retirement account, you will have sixty days to rollover your funds to a new 401k or IRA. If you fail to meet this deadline, you will be made to pay your personal income tax rate on the withdrawn funds, as well as an early withdrawal penalty of 10% if you are not over 59½ years old. Depending on your personal income tax bracket this could total upwards of 35% of your capital!
How do I closeout a 401k account and avoid these taxes and fees? If you close out your 401k account and immediately roll it over to a new retirement account in the allotted time frame, you will incur no fees on your funds. If your new retirement account is with an online brokerage such as ETrade or Zecco you can complete the required forms online from your home or office computer.