4 Rules For 401k Rollovers

4 Rules For 401k Rollovers

The Prelude:

First, try to say this title three times fast. Next, have a listen, and learn what you need to know about 401k rollovers.

The Bass Lines:

Rule Number One: When You Leave A Company, Your Money Should Also Leave.

  • [00:36] Don’t leave your money behind! You wouldn’t believe how many folks take a new job only to leave their 401k accounts with their old employer. That’s like leaving your cherished football jersey with your ex-girlfriend from high school. When you leave your money in an old 401k, you’re also giving up flexibility and control. 401k rollovers will allow you to take control of the many investing options out there. Take your money with you, consolidate your accounts, and put your investments into your own IRA account.

Rule Number Two: There Are Exceptions To Rule Number One.

  • [3:06] We’re going to give you two. If you worked for the State of North Carolina for at least five years prior to 1989, a 401k rollover might not be for you. While oddly specific, if you’re in this category, you might have been affected by the ruling in Bailey v. State of North Carolina. If so, you don’t have to pay state income tax on money you withdraw from your 401k. Another exception to the rule is if you’re young. Let’s say you left a company at age 55. You’re not allow to withdraw from your IRA until you turn 59 1/2. If so, you’ll have to pay a penalty. However, if you leave your money in your 401k, you can withdraw penalty-free as long as you’re at least 55.

Rule Number Three: If Possible, A Trustee To Trustee Transfer Is Best. 

  • [5:56] In an ideal world, the company managing your 401k will write a check to the company managing your IRA. You’d never have to handle the money, and it’d go straight from one account to the other. Unfortunately, we don’t live in an ideal world. Sometimes your 401k provider will only make a check to you. If so, you only have 60 days to deposit the money into your IRA before the government counts it as a 401k withdrawal. In that event, Uncle Sam will collect his check, and you will be unhappy. The 60-day window should be a gracious plenty, but if possible, take advantage of the trustee to trustee transfer.

Rule Number Four: 401k Rollovers Need A Purpose.

  • [8:43] Give your 401k rollover a strategy. What are you going to do with that money once it’s in an IRA? If you leave it in the same funds or put it in a money market, you might be missing out on potential gains.

The Crescendo:

The Encore:

The host: John Stillman – ContactBook – Call: 919-391-3446