401k Rollover – A Guide For US Citizens
What is a 401k rollover? A rollover is when your employer offers you a new deferred salary payment in the form of a regular, automated withdrawal from your 401k account. In essence, your employer pays you money to invest elsewhere instead of making you take out a new rollover plan.
Before you are allowed to roll over, you must first be advised by your employer. You will need to provide a couple of documents to the human resources department of your employer. First, a W-2 form with your pay stubs as proof of income and job duties. Second, a couple of months prior to the rollover, you must complete an IRS Form 1040 with your most recent tax return. Your rollover money must be deposited into your IRA within 60 days of the approval.
In order to roll over your plans, you must move the funds from your Traditional IRA to a Roth IRA. Most traditional IRAs are tax-deferred plans. Tax-deferred plans allow you to save on taxes until such time as you would need the funds to purchase a retirement or other benefit. In a Roth IRA, however, you can withdraw money for your retirement or investment purposes without paying taxes on the withdrawals. If you don’t have enough money in your Traditional IRA to cover your needs at retirement, the funds in the Roth are available for conversion into real estate, stocks and bonds, and/or mutual funds.
There are several types of rollover plans that are available to employees. Most employer-sponsored rollover plans provide the employee with one equal monthly contribution. Some employers may also contribute extra money every so often to your rollover plan account to help offset taxes if you are exceeding the lifetime limits for the plan.
Some employers will provide a limited pullout option if you are unable to roll over your contributions. You should ask your employer what their procedure is for this. In some instances, you will be required to wait until the day after you reach the retirement age for Social Security benefits to become effective before you can take the money out. This may cause a delay in your rollover plan contributions, but if you remain employed, it will help you avoid Taxes and penalties later on.
Another type of employer-sponsored plan is the Money Over Rollover Plan (MOX). This type allows you to roll over your balance directly into a new qualified account. As with rollover contributions, you should check with your employer to see if they have a Money Over Rollover Plan or not. An alternative to this method is to save for a withdrawal and then pay the withdrawal off when you reach your required retirement age.
Probably the easiest way for you to take money out of your 401k and take advantage of a 401k rollover plan is to create your own individual retirement account (IRA’s). These accounts offer flexibility and are relatively easy to set up. If you do not have enough money to invest initially, you can always open a self-directed IRA. Some self-directed IRA plans also allow you to make rollover contributions directly to your IRA account. Some IRA providers have websites that will show you step-by-step instructions on how to start an IRA plan.
The main benefit of having an IRA is that you can contribute more money towards your retirement funds than you could if you leave your money to invest in a traditional savings plan. Withdrawals from an IRA also have penalties associated with them. These penalties will make it more difficult for you to take advantage of a rollover to a conventional plan. For many people, the best choice for them to take money out of their 401k is to take the rollover directly into a self-directed IRA plan. You can learn more about self-directed IRA’s by visiting the website Financial Protector.