| Rolling Over Your 401(k) |
Moving Your Money from a 401(k) to Another Account When you leave a job where you have a 401(k) retirement account, you have a choice. You can either leave your money in the company's 401(k) account, or you can transfer your money out of the company's 401(k) account and into a personal retirement account. For most people, the choice is a simple one---move the money into a personal account so you have control of it.  The question is, how do you do that? How do you transfer money out of a 401(k) account and into a personal retirement account? The process of moving money from a 401(k) to a personal retirement account is called rolling the account over. However, one key characteristic of a rollover is the money goes directly from one account to another, instead of coming to you first. If the money came to you first, you could be hit with unwanted tax penalties. Also, the account you roll your money into has to be similar to your 401(k) account. For instance, you wouldn't pour water out of a bucket and into a wicker basket. Instead, you would pour water out of one bucket and into another bucket. In this case, you would roll your money out of your 401(k) account and into a Rollover IRA. Rollover IRA (Individual Retirement Account) A Rollover IRA (Individual Retirement Account) is a personal account that has the same tax attributes as a 401(k)---which enables you to directly roll all of the assets you have in a 401(k) account directly into the IRA without having to pay any taxes. Rollover IRAs and 401(k) accounts share the following tax attributes: - Money can be deposited into the account pre-tax---which means you don't have to pay taxes on the money before you deposit it - Money within the account accumulates on a deferred-tax basis---which means you don't have to pay taxes on any gains within the account [Learn more about Tax Deferred Investing] - Money is taxed as ordinary income when it is withdrawn from the account---which means you pay taxes on withdrawals at the same rate you pay taxes on the money you earn from working - Money withdrawn before age 59 1/2 is charged a 10 percent penalty---which means you take a hit if you pull money out before retirement Opening a Rollover IRA Opening a rollover IRA is an incredibly simple process. Check out Opening an Online Brokerage Account to learn more.
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3.25 Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved." |
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