What Can I Transfer My 401k to Without Losing Money?
There are four basic options when it comes to your 401(k) account: leave it as-is, roll it over into another employer’s plan, convert to an IRA or cash out. A direct rollover may be your most favorable option.
Direct transfers may allow you to avoid taxes and penalties; however, be mindful that it takes up to 30 days or longer for such transfers to complete.
1. IRA
If you decide to rollover your retirement savings, an Individual Retirement Account (IRA) provides numerous advantages. They can be opened with banks, brokers or even robo-advisors, giving you more control than through workplace plans.
An additional advantage of IRAs is lower fees. Many workplace plans charge participants management and administrative fees that can drastically lower long-term returns. An IRA provider typically charges fewer or no fees, and investing directly in stocks and mutual funds further cuts costs.
There are various kinds of Individual Retirement Arrangements (IRAs), such as traditional, Roth and SEP IRAs. You can use an IRA for nearly any kind of investment; mutual funds and exchange-traded funds (ETFs) are popular choices; you could even invest in real estate, private equity and limited partnerships using one. But keep in mind that an IRA should serve as long-term retirement savings accounts and cannot be accessed before age 59 1/2 without incurring tax penalties and additional fees.
2. 401(k)
Many Americans change jobs each year, which requires them to decide what to do with their old 401(k). At Ameriprise Financial Advisors we can evaluate your options and assist in making decisions based on your goals.
If your new employer offers an appealing 401(k), rolling over your 401(k) into its plan is often the best solution if fees, services and investment options suit you well – this way you’ll keep all your retirement savings under one roof while cutting administrative tasks down considerably.
However, if your new employer doesn’t offer a 401(k), an IRA rollover might be worth considering as they tend to offer lower fees than 401(k) plans and provide greater flexibility and asset diversification opportunities for retirement planning. Furthermore, those under age 59 1/2 can avoid incurring a 10% penalty by investing through an IRA as it eliminates that costly penalty altogether – an attractive feature indeed! You could also cash out your 401(k), although that usually isn’t recommended either.
3. 403(b)
A 403(b) retirement savings plan provides tax advantages to employees of non-profits, schools and certain government organizations – sometimes known as “clergy plans.”
If you change jobs, you have 60 days from your previous employer’s termination to roll your 403(b) into an IRA before it will be treated as withdrawn funds and tax penalties will apply.
Your options for investing may also be more limited and fees higher than with an IRA.
Consider rolling over your 403(b) into an IRA for greater investment options, lower fees and professional portfolio management aligned with your LifeWealth Plan. Get in touch with us for more details – we would be more than happy to explain the process and assist you through it all!
4. 457(b)
The 457(b), designed specifically for government workers, provides another tax-deferred retirement savings plan with doubled contributions available each year. Much like its counterparts 401(k)s and 403(b)s, its earnings accumulate tax deferred until withdrawal; at that time they become taxable as ordinary income.
By rolling over your 457(b) to a brokerage account, it can provide more investment choices while streamlining your financial life by consolidating all retirement accounts into one. But before making the switch, be sure to fully understand all relevant rules and potential tax ramifications involved before taking action.
While 457(b) rollovers may be possible while still employed, depending on the rules of your plan they may not always be possible. You might need to reach a specific age (typically 59 1/2) or experience withdrawal event before moving the funds over. Furthermore, non-governmental plans don’t permit in-service rollovers at all.
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