What Are Your 401(K) Rollover Options?
The main way many people have been saving for retirement has been to invest in a 401(K) plan, which is a retirement account you contribute to with pre-tax income. Many times, employers who offer these plans also add an employer match, or an additional amount the employer kicks in up to a certain percentage of the total an employee invests. If you have a 401K account, and you decide it’s time to leave your employer (or the employer decides it’s time to let you go), you can choose to leave your retirement account with your employer’s fund manager. Or, you have other options to move that money as well, but there are steps you must take to do it correctly.
One of your 401K rollover options is to take your money with you to a new employer, moving your funds to the new employer’s fund management company. This means that the new employer’s fund manager will help you transfer your retirement funds from your previous employer, and you can manage them at your current job along with your new contributions. This kind of roll over, from one company’s plan to the new company’s plan, helps you to avoid having money at many different employers, which would require that you continue to keep track of multiple accounts from your previous employers’ fund managers. Moving it all into one place is easier to manage.,
But you also have the option of moving all of your retirement account funds to what’s known as a self directed 401K. This is an account you open at a brokerage company on your own, and then the money is transferred by your new broker into a new retirement account. You must have the broker initiate the transfer, you cannot withdraw your retirement money from your old job, and then deposit it, or you will suffer a high penalty. Instead, doing a rollover of your money into a broker account of your choice is even better than a roll over to your new employer. You will have many more investment options available to you, beyond just those offered by your employer’s management company. You can keep that account open and invest in whatever you like, and if you make future job changes, continue to roll over all of your collected retirement funds into that brokerage account.
If you have a choice between doing a rollover to your new employer, or rolling over your 401K into your own self directed account, you are likely better off having an account your have total control over.
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