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Your Guide to 401(k) Rollovers

Employer-sponsored retirement plans, such as 401(k)s and 403(b)s are a wonderful opportunity for you to invest in your financial future. When you leave your place of employment, you will have some decisions to make. Our financial advisors at Okun Financial Group can help you navigate a rollover and manage your new retirement account for you.

401(k) Rollover Rules & Requirements

401(k) Rollover Rules & Requirements

401(k) rollover rules are relatively simple. There’s no limit to how much money you can rollover from your 401(k) to another qualified retirement account. However, you can typically only rollover your funds once every calendar year. With a direct rollover, the funds are moved directly from your previous 401(k) to your new retirement account. You won’t have to pay taxes on the income, nor will you be subject to an early withdrawal penalty. 

If your previous retirement fund releases the funds directly to you, you only have 60 days from receiving the money to depositing it into a new retirement account. This indirect rollover option is the least favorable for other reasons. Your 401(k) disbursement will only send you 80% of the balance. But you have to reinvest 100% of the money to avoid early disbursement penalties and income taxes on the difference.

Alternatives to a 401(k) Rollover

Alternatives to a 401(k) Rollover

When you separate from your place of employment, you can choose a 401(k) rollover. However, you can also choose to leave the retirement account in place. In that case, you cannot make further contributions to the plan, and you may have limited access to change your selection of assets. Another challenge is the need to manage an additional retirement account, which may add up over the course of your career.

Another potential option is to cash out your retirement fund. If you’re under the age of 59 ½ and don’t qualify under the hardship rules, you have to pay an early withdrawal penalty of 10%. The distribution also counts as regular income and will increase your tax liability for the year. Cashing out early also means you lose out on tax-deferred growth.

What You Need to Know about 401(k) Disbursements

What You Need to Know about 401(k) Disbursements

You can receive qualified distributions from your 401(k) starting at age 59 ½. If you separate from your employer after your 55th birthday, you may receive distributions from that employer’s 401(k) without incurring penalties. Otherwise, the early distribution penalty of 10% applies. And any disbursements from your 401(k) will be taxable.

When you reach age 72, you have to take required minimum distributions. These are calculated based on the amount in your account and your life expectancy. Not taking the required minimum distributions incurs a hefty 50% penalty, and you still have to take the distribution and pay taxes on that income.

FAQs about 401(k) Rollovers

Can I Rollover My 401(k) to an IRA?

Yes, you can rollover your 401(k) to a qualified IRA as long as you meet the other rollover rules. We can help you set up the rollover to ensure you don’t end up paying penalties or taxes on the rollover amount. An IRA gives you more flexibility in choosing your investments than a 401(k), and it makes it easier to manage your retirement savings when they’re all in one place.

Do I Have to Pay Taxes on My 401(k) Rollover?

Typically, no. The IRS rollover rules allow you to transfer your 401(k) to another qualified retirement plan without paying taxes on the rollover amount. However, if you only rollover a partial amount or convert your 401(k) to a Roth account, you must pay taxes on the amount and early withdrawal penalties may also apply.

When Can I Receive Penalty-Free Disbursements?

You can receive penalty-free disbursements after age 59 ½. You may also qualify to receive disbursements without penalties if you separate from your employer after the age of 55 and receive disbursements from that employer’s 401(k). Finally, you may qualify to receive early disbursements under the financial hardship rules.

Schedule an Appointment to Discuss Your 401(k) Rollover

We’re ready to help you with your 401(k) rollover. We’ll help you understand the rollover rules and regulations to avoid hefty penalties and income taxes on the rollover amount. Talk to our team members at Okun Financial Group today to schedule your appointment.

Contact Us

Kathie H. Okun, CLU, ChFC, LUTCF

President / Wealth Advisor
Investment Advisor Representative of Lincoln Financial Advisors Corp.

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