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401(k) Rollovers: Transitioning to Retirement with Confidence

401(k) Rollovers: Transitioning to Retirement with Confidence

May 07, 2024

For investors who are nearing retirement or transitioning from one job to another, the question may arise: what should I do with my 401(k)? The 401(k) rollover can help you access your funds and avoid any unnecessary tax consequences, significantly impacting your financial security in retirement. In this post, we’ll cover all the basics of 401(k) rollovers.

What is a 401(k) Rollover?

A 401(k) rollover involves transferring the funds from your existing 401(k) plan (from a previous employer) to another tax-advantaged retirement account. This could be a new employer’s 401(k) plan or an individual retirement account (IRA). A rollover helps you maintain the tax-deferred status of your retirement savings and often provides a broader array of investment options.

Reasons to Consider a 401(k) Rollover

  1. Consolidation of Retirement Funds: Rolling over old 401(k)s into a single account simplifies managing your investments and keeps track of your overall retirement portfolio.
  2. Better Investment Choices: IRAs often offer more diverse investment options than 401(k) plans, potentially aligning better with your retirement goals and risk tolerance.
  3. Lower Fees: IRAs can sometimes have lower administrative fees compared to 401(k) plans, which can save you money in the long run.
  4. Tax Management: Rollovers can help you manage your tax liabilities, especially if you opt for rolling over to a Roth IRA, where qualified withdrawals are tax-free.

Execute a 401(k) Rollover

Rolling a 401(k) into another account is a simple process. Here’s an overview of how it works:

Step 1: Choose the Right Type of Retirement Account

Traditional IRA: Contributions are often tax-deductible, and taxes are paid on withdrawals in retirement.

Roth IRA: Contributions are made with after-tax dollars, and withdrawals in retirement are tax-free.

401(k): You can consider this option if you’re transferring an account from a previous employer to a new employer-sponsored 401(k) plan.

Step 2: Contact Your 401(k) Plan Administrator

Ask about the rollover process, including potential fees and transfer timelines. Ensure you opt for a “direct rollover” to avoid taxes and potential penalties.

Step 3: Open Your New Retirement Account

If you don’t already have an IRA, you’ll need to open one with a financial institution. Choose based on fees, investment options, and customer service.

Step 4: Initiate the Rollover

Request a direct transfer from your old 401(k) to your new IRA or 401(k). This prevents any tax withholding and penalties on the transferred amount.

Step 5: Choose Your Investments

Once your funds are in the new account, work with your financial advisor to decide how they should be invested. Together you’ll consider your retirement goals, risk tolerance, and time horizon.

How Price Financial Management Can Help

At Price Financial Management, we understand that transitioning to retirement or moving between jobs can be complex. We are here to assist with every step of your 401(k) rollover process, ensuring you make the most informed decisions for your future. Our team of financial professionals is dedicated to helping you plan and execute your rollover strategy, tailored to your unique financial situation.

Planning for retirement should be exciting, not overwhelming. By understanding your 401(k) rollover options and potential strategies, you can approach this significant phase of life with confidence and clarity. Schedule an appointment with us to discuss how we can support your journey toward a financially secure retirement.