Unsure what to do with your old employer retirement account??
What should you do?
In the event that you quit your job, most employers allow you to keep your 401(k) safely with them, but you won’t be able to contribute to it anymore. It’s in your best interest to ensure you can keep an eye on them by gathering these funds and rolling them over into a new 401(k), IRA or, if needed, a savings account. This way you can continue to invest in yourself and your retirement, keep track of your money and plan for your future on your own terms.
If you have one or multiple employer-based 401(k) accounts, and you’re ready to regain access and control of them, here’s three ways to get your earnings and roll over your 401(k).
Roll over 401(k), SIMPLE or SEP to a new employer (if permitted)
If you’ve begun working for a new job, rolling over your 401(k)(s) from past jobs is a great way to kick-off your new 401(k) with funds if your new employer offers retirement plans.
To do this, you’ll need to reach out to your previous jobs’ HR consultant to receive information about the companies’ 401(k) plans and contact information. From there, you’ll request a direct rollover of each account to your new employer-based 401(k). When you specify a direct rollover, you’re asking for the company to make your check out to your new employer’s plan, and not you. You can avoid any tax penalties this way, and allow your money to resume its growth tax-deferred.
If you choose to ask for each account to cut a check directly to you (i.e. an indirect rollover), keep in mind that you’ll only have 60 days to transfer the funds into your new retirement account. With an indirect rollover, you also risk your past jobs withholding 20% from each of your accounts’ funds. When you invest the funds into your new 401(k), you’ll have to make up each 20% portion yourself.
For example, with an indirect rollover if you are rolling over $18,000, your previous job would send you a check for $14,400, the full amount after they have deducted 20%. That’s $3,600 you now have to find to reinvest the full $18,000 in your new account!
Roll over 401(k), SIMPLE or SEP to an IRA
If you rather open up your own personal retirement fund, an IRA (or Individual Retirement Account) is a great option. When rolling over your employer-based 401(k) to an IRA, first choose where you want to invest.
Again, ask for a direct rollover into your new IRA to avoid those pesky penalty fees. There may be additional paperwork to complete from your existing 401k for this. Once you’re all set up, you can begin to build your retirement portfolio by investing in a wider range of investment options, although it is worth acknowledging the fees will be higher than through your previous 401k.
Business owner? Roll over 401(k) to a new 401(k) or other employer qualified plan
While 401(k) plans are primarily employer-based pensions, if you are self-employed and manage your own small business, you should be able to create a solo 401(k) for your company. Because you are both the employer and the employee, you can request for your direct rollover to go towards your new account, or ask for the check to be made out to you for you to deposit yourself (just remember the 60 day rule). Keep in mind this shouldn’t be a personal check, but one made as a deduction from your payroll as a contribution to your retirement funds.
To create a solo 401(k) as a business owner, the steps are almost the same as opening an IRA, however you must have an EIN (Employee Identification Number). Don’t have one? Register for free today through the IRS.
Need a little help?
Fyvie Financial offers personal investment management to assist you in making informed decisions and preparation about your financial future. Click here to book your complimentary discovery call today to learn how our team can help you create a retirement portfolio tailored to you and your individual situation!