What Can I Transfer My 401(k) To Without Losing Money?
If you have a 401(k) with your old employer, you may want to roll it over to your new one or an individual retirement account (IRA). However, failure to follow the transfer rules could result in extra taxes and penalties.
A direct rollover is when one financial institution sends a check directly to another financial institution. This makes the process easier and faster.
Target-date funds
Target-date funds are a popular option for those who want to invest in a diversified portfolio that will align with their investment horizon. These funds automatically rebalance their assets to reflect the investor’s expected retirement date. They typically shift from a growth-oriented strategy to a more income-oriented approach as the fund nears its target date. However, they are not guaranteed to meet investors’ investment goals.
Some critics argue that target-date funds are not bespoke, as they use a single data point to determine the fund’s asset allocation. Nevertheless, they have shown strong returns for investors.
These funds may merge into another fund when they reach their target date, which can impact performance. It’s important to read a fund’s prospectus before investing. You can find one on the fund’s website or contact its representatives for more information. These investments are not FDIC-insured and are subject to risk, including loss of principal. They are also not guaranteed by any bank or other institution.
Traditional 401(k)
Rolling over your old 401(k) into your new employer’s plan may seem like a good idea, but it isn’t always. Firstly, your new 401(k) might have less attractive investment options or higher fees than your former employer’s plan. Secondly, you might have a harder time keeping track of multiple retirement accounts. Each year, American workers lose track of billions in lost retirement savings accounts.
It is also possible to transfer your old 401(k) to an individual retirement account (IRA). This option is usually more cost-effective than your former company’s 401(k) provider. However, it is important to check the fees before deciding. IRAs don’t offer the same protection from creditors as 401(k) plans do. Moreover, they have lower contribution limits than 401(k)s. You can choose from a variety of brokerages and robo-advisors to manage your IRA. Bankrate’s comprehensive brokerage reviews can help you find the best fit for your retirement savings.
Roth 401(k)
If your old employer’s plan allows it, you can roll over a Roth 401(k) directly into your new employer’s retirement account. This way, the money continues to grow tax-free, and you can avoid future RMDs. However, this move makes sense only if you expect your tax bracket to be lower in retirement than it is now.
It is important to understand your options when changing jobs. For example, if you don’t follow the transfer rules, you could face extra taxes and penalties. In addition, you must decide whether to roll over your funds into a 401(k) or an IRA. It is important to compare fees and expenses between these accounts. You can also choose between a traditional or Roth IRA, depending on your current situation and what you expect in the future. If you don’t know what to do, ask for help from a financial adviser. They can provide a free consultation and make recommendations based on your specific circumstances.
IRA
IRAs (individual retirement arrangements) are tax-advantaged investment accounts that you can use to save for your retirement. They are particularly valuable tools for the 33 percent of private sector workers who do not have access to workplace-based retirement plans, such as 401(k)s. However, there are some limitations to IRAs that you should be aware of. For example, IRAs have contribution limits, required minimum distributions and some special rules for borrowers.
While it’s common to roll over your 401(k) assets when leaving a company, you can also move money from an IRA into a 401(k). To avoid paying taxes on the transfer, you should choose a direct rollover, which means that the money never touches your hands. This type of rollover is more secure than an indirect rollover, which involves a check from the old financial institution that you must deposit into your new IRA within 60 days to avoid taxes and penalties. You can choose to invest the money as part of a broader financial plan or you can leave it as-is.
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