A 401k rollover to an IRA account typically happens when you leave a job, become disabled or reach age 59 ½. Amongst many possible 401k rollover options, it’s no doubt that 401k rollover to IRA proves to be the easiest and the most sought-after option ever.
While you have the option of rolling your 401(k) to your new employer’s account, IRA rollover gives you maximum control of your investments and flexibility of choice since you are not limited to the investment options provided by your employer.
Though, there are exceptional cases in which you don’t have to rollover to IRA, which is because the current 401k plan offers more profits, such as great investment options and lower fees.
Moreover, transferring your 401k retirement plan to IRA offers significant tax savings and greater opportunity to compound your money. Yes, tax-free compounding is really, really powerful. In fact, it is one of the most obvious reasons to rollover a 401k to an IRA.
Compared to cashing out your retirement income, with your money transferred to IRA you’ll never have to deal with the pain of paying compulsory income taxes or withholding taxes charged by either state or federal government.
In summary, when performing an IRA rollover, it’s critical that you learn the IRA rollover rules and how best to avoid unnecessary taxes and penalties. If you have any concern about taxes, it is always worth checking with an independent tax consultant.
How to do a 401k Plan Rollover into an IRA?
- Select a trusted and reliable brokerage company – one that charges lower costs and provides you with a full access to your investments.There are some great brokerage companies, namely:
Vanguard Tradeking Zecco Scottrade No yearly IRA fee No yearly IRA fee $30 yearly IRA fee No yearly IRA fee No-load and low-cost index funds Low-cost investments through ETFs Low-cost investments through ETFs Low-cost investments through ETFs $4.50/ trade @4.95/ trade $4.50/ trade $7/ trade $3,000 minimum No minimum No minimum No minimum Need more guidance? Here is more about choosing a brokerage company.
- Ask for and fill out a new rollover IRA retirement account
- Ensure your application is not a regular IRA account, but must be “Rollover IRA”
- Request and fill out an “account transfer” form that is provided by your previously selected brokerage company
- Copy your latest 401k statement and send new account application, transfer application, and copy of your latest 401k statement to your brokerage company
- Set up a trustee-to-trustee transfer. Be sure that the employer makes out the check to the financial institution where you have set up your IRA
2010 Contribution Limits
The 401(k) contribution limit for is $16,500 for those under 50 years old. For anyone between the ages of 50 and 59 ½ years old you also have the option of contributing an additional $5,500 as a catch-up contribution.The IRA contribution limit for is $5,000 for those under 50 years old, with a $1,000 catch-up contribution option for those between 50 and 59 ½ years old.