In the world of retirement investing, a rollover is as simple moving assets from your old retirement plan to a new retirement plan. If you were to choose to withdrawal the funds from your employer sponsored 401k plan, and you do not meet the age requirements for withdrawals, you will be subject to hefty taxes and penalties on the amount of withdrawal.
Whether you have lost or left your current employer, or a retiring but do not yet need access to your funds you may be wondering where can I put my 401k rollover?
A popular option is to rollover the funds in your 401k account to a new retirement account, typically an IRA or a Roth IRA in order to postpone the payment of taxes, and eliminate the additional penalties altogether.
Although you may have the option of leaving your funds with your past employer, in the majority of cases it is better to roll the funds over to a new retirement account. Online brokerages such as discount broker ETrade, make it easy and affordable to rollover your 401k account. Every situation is unique, and only you and your financial adviser can decide what is right for you.
Where Can I Put My 401k Rollover?: Withdrawal Options
If you do decide not to leave the funds in your 401k, you have three options: cash out your 401k plan, roll the funds over to a new Individual Retirement Account, or rollover your funds to your new employer’s retirement plan.
The first option is undoubtedly the most expensive is it requires a mandatory 20% federal income tax withholding, payment of income taxes on the entire amount withdrawn, and an additional 10% penalty if the funds were withdrawn before you turn 59½.
You may also choose to rollover your current 401k to a new 401k plan with your new employer. This process is very simple, and requires that you fill out the proper forms provided by your plan administrator.
Where can I put my 401k rollover? The option the works best for the majority of investors is to rollover your funds to a traditional or Roth IRA. The IRS has strict rules and time frames for 401k to IRA rollovers and it is important to understand the rules and abide by them carefully in order to avoid hefty fees and penalties.
Where Can I Put My 401k Rollover?: Investing Your 401k Rollover
Once you have answered the question, “where can I put my 401k rollover?” you must then decide where to invest your retirement money within your new retirement account. While your choice of assets is usually limited to a handful of investment options, you can invest in almost any security, across a broad range of asset classes when you invest in an traditional or Roth IRA.
You must take a variety of factors into account when selecting investments for your IRA including your current age, your time frame for investing, your risk-tolerance, and level of investing experience.
If you are new to investing this may seem overwhelming at first, but useful tools like the stock screeners offered at leading online broker ETrade make selecting mutual funds, individual stocks, ETFs and other potential investments for your IRA quick and easy.