Are you leaving your current job? If so, you want to make sure that your retirement account is safe. One of the best ways to do this is through a rollover. Rollovers are basically taking your 401(k) from one company and putting into the 401(k) offered by another company. This is not always necessary, but it can be a good move as far as retaining things like matching contributions and better control over your portfolio go.
But what if your new employer does not offer a 401(k)? What if you are going into business for yourself? Either of these scenarios can put a damper on your rollover plans. Plus, if your old employer does not have a program that allows you to keep your 401(k) there after you leave, you could have a real problem, right? Well, not really.
Rolling your 401(k) into an IRA
You can roll your existing 401(k) into an IRA and reap the benefits. In fact, if you are leaving a job and have the option to keep your 401(k) with your old employer, you might consider the IRA rollover option before making a decision. There are many benefits to the IRA that may make it a more palatable choice, especially if you are planning on leaving an employer to start your own business. Plus if you use a direct rollover to transfer your 401(k) assets into an IRA, you can avoid paying the automatic 20 percent tax that comes with withdrawing from your 401(k). After all, closing your 401(k) with your employer means you have to take the money out of the account, and that means it is no longer tax-deferred. Rolling it directly into an IRA, though, can help you dodge the tax.
Getting into a Roth IRA from a 401(k)
You should realize, though, that when you roll a 401(k) over into an IRA you will have to deal with some inconveniences, especially if you want a Roth IRA. The Roth IRA has some specific tax benefits that, coming from a 401(k), might not be realized. The IRS does its best to close those loopholes. If you want to convert your 401(k) into a Roth IRA, you should probably first rollover the 401(k) into a traditional IRA account and then convert the traditional IRA into a Roth IRA. This is the best way to cut down the amount you have to pay in taxes during the transition. However, you should consult with your accountant or a tax specialist to make sure that all the rules are being followed. Some of your assets may not be eligible for a Roth IRA, and you may end up with some of them in a traditional IRA and some of them in a Roth IRA.
Getting the rollover
It is relatively easy to find companies that can help you with rollovers. Brokerages, banks and other financial companies can help you rollover your 401(k) into some sort of IRA. However, you should be on the lookout for fees. Once you leave the company retirement plan and turn it into something that you manage with the help of a financial institution, you will be paying more in fees. Do some research to make sure that you are getting a good deal, and to make sure that most of what you save in taxes in a direct rollover does not end up eaten up by brokerage and bank fees.