What Can I Transfer My 401k to Without Losing Money?

There are multiple methods you can use to move your 401(k) money without incurring penalties or incurring losses. One such approach is direct rollover, in which your plan administrator sends the check directly to its new destination.

An alternative option would be to transfer your old account into one of your employer’s retirement plans, which may offer lower fees and greater investment options than its predecessor. Doing this may make managing retirement savings simpler as well.

Target-date funds

Target-date funds offer an easy solution for retirement savings: they automatically invest in stocks, bonds and cash depending on how close they are to your expected retirement date. As your target retirement year nears, the fund gradually shifts toward less risky portfolios such as bond funds or money market accounts for added protection.

Target-date funds often charge relatively high fees, which can have an outsized effect on your long-term retirement account. A study conducted by the U.S. Department of Labor discovered that even one percentage point difference in fees can reduce your balance by 28% at retirement time.

Some investors use target-date funds as part of a portfolio, but experts advise against doing this. It would be more prudent to select just one target-date fund and rebalance as necessary.

Stocks

Savings accounts provide only modest returns, while investing money in the stock market could yield greater results. Stocks represent ownership stakes in a company and trade on public exchanges such as the New York Stock Exchange where their price fluctuates according to various factors.

Many companies issue stocks as a form of capital raising, with investors purchasing these shares with the hopes that the company will thrive and generate greater profits, leading to an increase in its stock price and possible dividend payments if it ever goes bankrupt – meaning investors should proceed with caution when investing in stocks.

Bonds

Bonds are fixed-income investments that pay you regular interest payments at regular intervals. While this investment type may seem safer than stocks, inflation and currency fluctuations could alter its value and payment schedule over time.

One way of investing in bonds is via a bond mutual fund, which pools money from many investors to purchase various bond investments. Another method would be purchasing individual bonds directly from companies or government entities.

As soon as you set up your 401k, you should allocate a specific percentage to stocks and bonds. Over time, some investments may outstrip others in their growth rate; therefore, it may become necessary to adjust them periodically by selling some winners while purchasing more of their losers.

Cash

If you decide to convert your old 401(k) into an IRA, it is crucial that you choose an institution wisely. Bankrate advises choosing an online robo-advisor or brokerage with low-cost mutual funds and ETFs; otherwise, your previous employer might offer target date funds that automatically reallocate investments as you near retirement; in which case, moving the money yourself might be necessary.

To avoid being subject to mandatory 20% withholding for taxes, ask your former employer to make the check payable directly to a financial services company instead of directly to yourself. That way it will go straight into an IRA without ever touching its funds; this process is known as direct rollover; any money withdrawn from it during retirement will be taxed as ordinary income.

Mutual funds

Mutual funds are pools of investor money used to buy stocks or bonds, known as net asset value (NAV). Their price fluctuates daily according to the value of its securities and total outstanding shares; additionally, this reflects any purchases and sales transactions during the day as well as fees charged by the fund.

If you are leaving your previous company, it is essential that your 401(k) be converted to an individual retirement account (IRA). Each brokerage and robo-advisor has its own process for rolling over accounts to an IRA; to avoid penalties and confusion. Also be sure to investigate available IRA offerings prior to selecting an institution – these accounts offer more investment choices and easier management than their counterparts.


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