Take Advantage Of Your Companies 401k

One of the biggest mistakes that you could possibly make in your whole lifetime is messing up your retirement plan. Not many people have realized that knowing how to manage your retirement plan will determine if you will have a prosperous life ahead or not.

Most companies offers 401k plan to their employees and it’s up to you to sign up for it or not. If you are smart enough, you will enroll yourself in this plan. So, you pay for it for several years, but you then got a better offer from another company and decided to leave your current employer. A 401k plan is tied up to your employer, meaning you would need to either move or withdraw your 401k funds once you leave them. Moving your retirement funds is called a rollover, and there are two 401k rollover options. Beginners on this particular area (like most of us are), might have a problem choosing the best option so it’s best that we know about them.

The first type of rollover is called a direct rollover. This is applicable provided that you have already opened an Individual Retirement Account (also knows as IRA). A direct rollover works by having your 401k funds directly paid into an IRA. With this, the administrator of your 401k account would not be subjected to tax and you would not be asked to pay any penalty. You may need to submit a form or two. You will also be informed if the funds are going to be deposited directly to your account or if you’re going to receive a check for it. If the funds go through a check, then be sure to deposit it to your IRA as soon as possible.

Another type of rollover is to have the funds paid directly to you. This may be a little tricky if you’re not 59 ½ years old yet, as there may be a couple of possible tax penalties. To avoid tax penalties, there are a couple of things that you need to do. First, you’d need to deposit the funds into your IRA within at least sixty days. Take note that you would need to deposit the complete funds from your 401k plan. Since your former employer has withheld 20% of your funds as a requirement, you would need to fill up that 20% from your own pocket. Failing to do these steps will require you to pay additional penalties and taxes which will become a dent to your retirement plan.

These being said, the strongest advice that we could give you is to have a direct rollover. It’s less risky, and it’s less likely to give you a problem on rolling over your retirement plan. Before taking any action make sure to get 401k rollover info for the best course of action.