A Guide To The 401k Rollover

One of the most popular pension plans in the U.S is the 401k retirement scheme which also features the 401k rollover options. The 401k allows employees to make contributions from their wages to a retirement fund which can then be cashed in when they retire. The advantage of this plan is that employers can also pay money in to this fund and the savings are free from tax. What happens if you choose to move jobs? This is the time that the 401k rollover options can be implemented.
There are several ways to handle a 401k rollover. The first choice is to transfer the existing funds into an IRA (Individual Retirement Account). This can be done by the administration department of your previous employer who send the money straight into the retirement account. The money is not taken out by you and so you will not receive any penalties or have to pay tax.
But what if you have stocks in your previous employer's company? This can be dealt with in one of two ways. The first choice is to move the stocks into the IRA account without them being liquidated. Alternatively, you can cash the stocks in and place the funds into the IRA account directly. If you choose this method you need to ensure that the money goes into the account within 60 days; if not, then you may be charged tax on this money.
Alternatively you can move your exiting 401k plan to your new employer, if they accept the 401k rollover. This only usually works if you have a new job before you leave your old one. Take the time to check out the new employer's investment options to decide if this is the best option for you.
The final option is to cash in the funds that are held in your 401k scheme. This can be quite a costly move as employer's a legally bound to withhold 20% of the funds for tax purposes. You may also have to pay income tax and a 10% penalty for taking the cash out before you retire.
Many freelancers and self employed people do not have a pension scheme and the number of these types or workers is increasing each year. Several self employed retirement plans exist, and the 401k offers such a scheme.
This plan, known as 401k (Solo) is not a well-known scheme but it has many benefits. Firstly you can contribute up to 100% of the first $15,500 in a year. You can then make contributions or deduct payment up to 25% over this initial amount. If you reach the cap amount of $225,000 in one year, it may be best to change self employed retirement plans as you cannot accrue any more savings after this threshold is reached. Another advantage of the 401k(Solo) is that you can pay less or nothing in the lean years. You can also borrow money from you account which does not count as a withdrawal which means there are no penalties.
If you are about to change jobs it is worth considering your 401k rollover options and make a decision about which is the right one for you. It may be worth speaking to a professional pension advisor to discuss the best options.

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