What is a 401k Rollover?

A 401k rollover is the term typically used when an individual who has a 401k plan wishes to "rollover" their retirement plan into a new IRA (Individual Retirement Account).

This process is most commonly referred to as a "401k rollover" or an "IRA rollover", and typically occurs when you change employers or retire and want to better control how your retirement savings are invested. If you leave a job for whatever reason and have a 401k account, you traditionally can decide between taking a lump sum (with possible tax penalties), to keep the funds with your old employer (if they allow this), or to arrange a 401k rollover into a new IRA.

The IRA is not an investment itself, but merely an account that holds future investments on your behalf, such as stocks, bond, annuities, mutual funds and money market funds.

The advantages of a 401k rollover are that you can avoid any immediate tax liabilities, and keep your money earning tax-deferred income on track within your retirement plan.

Millions of 401k rollovers take place each year between insurance companies, banks and financial institutions. It is important to make sure that your former employer transfers the funds from your 401k direct to your new IRA account. If the money is sent to you, they must withhold 20% of the distribution as a prepayment of federal taxes, in addition to other possible fees and penalties.

A qualified financial planner can be of tremendous assistance in helping you map out an investment strategy that is tailored specifically to your needs. Beyond the 401k rollover, they can help make sure that your decisions align with your retirement plan, provide advice on maximizing future contribution advantages through 401k matching plans a new employer may offer, and assist you in monitoring and advising on any changes that could improve your financial outlook and security.

The 401k rollover can also be utilized for those moving into retirement, who would like to consider moving their savings into an annuity to maximize growth through tax deference into the future. There are several different types of annuities that can be advantageous from a 401k rollover, including indexed annuities, fixed rate annuities and even immediate annuities for income generation.


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