Why Should I Roll Over My 401(k)?

If you have a 401(k) account through an employer and you leave your job or retire, you often have a choice to either keep your money in your old employer’s 401(k) plan or roll over the balance into another retirement account.

A key reason that people choose a rollover is because of the flexibility that comes from this transaction. Rather than being limited to the account structure and investment options of the retirement plan with your previous employer, you can choose the account you want to roll your balance into, which could provide you with benefits such as more investment options or lower fees. In other cases, plan rules require former employees to complete a rollover whether or not the employee wants to, such as if their 401(k) balance is below a certain threshold.

A common rollover involves moving your 401(k) balance from your previous employer’s retirement plan into your new employer’s 401(k) plan. However, you should consider the investment options in the new employer’s retirement plan before making this move.

You might find that you’d be better served by rolling your balance into an individual retirement account (IRA) where you can choose your investments. If you had a traditional 401(k), you could do a rollover into a traditional IRA or pay income tax on your balance now to convert your account into a Roth IRA.

When completing any rollover, it’s important to look into is whether you can directly transfer your 401(k) balance from one retirement plan to another or from one financial institution to another.

If not, you’ll have to personally take a distribution from your 401(k) balance. You’ll then have a 60-day window in which you’ll need to deposit that balance into another retirement account. If you wait longer than 60 days, the rollover will be treated as a taxable distribution to you, meaning you’ll have to pay income tax and potentially a 10% early distribution tax if you are below a certain age (59 ½ as of 2019).

You can work with your financial advisor to decide if a rollover makes sense for you and how you should go about doing so depending on your 401(k) balance, investment options, tax bracket, and overall situation.

Schedule a complimentary, 15-minute call with a fee-only financial advisor today to discuss your personal situation.

Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.