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I need to rollover my old account. What are my options?

You are “rolling over” your money without taking any out, so that you can continue to enjoy the benefits of tax-deferred retirement savings. When you leave a job, there are two main types of 401(k) rollovers.

  • Rollover to an IRA
  • Rolling over to new employer’s plan
  • Cashing out
  • Note

Rollover to an IRA

You can rollover your 401(k) to an IRA at the financial institution of your choice. This gives you access to many more investment options, including individual stocks, real estate investments and commodities. You’ll have more flexibility to manage your investments over time and maximize your returns. Always make sure you understand the annual fees you will be charged for your Rollover IRA.

Ask your plan provider to do a direct rollover, where they transfer your funds directly into the IRA account. You will need to fill out forms. Otherwise, if they give the money directly to you, they will withhold 20% for taxes. You have 60 days to put that money into an IRA, but you will also have to deposit the 20% that was withheld—a complication that’s best to avoid.

Rollover to your new employer’s 401(k) plan

This can be a good option if your new employer’s plan accepts transfers, and if you are happy with the new plan’s investment choices and the fees are reasonable. Having one 401(k) plan makes it easier to track the performance of your investments over time and to make changes.

Initiate the rollover with your new plan administrator, and have your old administrator send the funds directly to the new plan. You may need to wait a period of time in the new job until you can make the transfer.

Cashing Out

Cashing out is taking money out of your savings prematurely. This is a common and potentially devastating mistake that people make at job transitions. Cashing out your savings has long-term consequences on your retirement savings and is an irreversible decision.

There is also an immediate price to pay for cashing out, taxes and penalties.

* This hypothetical example assumes the following: (1) One annual $5,500 IRA contribution made on January 1 of the first year, (2) annual rate of return of 7%, and (3), no taxes on any earnings within the IRA. The ending values do not reflect taxes, fees or inflation. If they did, amounts would be lower. Earnings and pretax (deductible) contributions from a traditional IRA are subject to taxes when withdrawn. Earnings distributed from Roth IRAs are income tax free provided certain requirements are met. IRA distributions before age 50-1/2 may also be subject to a 10% penalty. Systematic investing does not ensure a profit and does not protect against loss in a declining market. Consider your current and anticipated investment horizon when making an investment decision, as the illustration may not reflect this. The assumed rate of return used in this example is not guaranteed. Investments that have potential for a 7% annual rate of return also come with risk of loss.

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