Don't Forget to Roll Over Your 401(k)
show that we change jobs an average of 10 times
throughout our careers. It's always a bit of a stressful
process, even if you're leaving your previous position by
Unfortunately, I have one more
thing to put on your long list of things to do the next time
you swap employers, but you'll thank me later: Roll over your
Why? Well, first of all, you don't want to make the mistake I
did in my 20s, which was to cash out my 401(k) and hit the
stores for a few nice outfits.
And, in most cases, you don't
want to leave it with your former employer. Rolling your money
over into an IRA gives you more control, and very likely more
investment options, fewer fees, and overall better
It's a bit of a tricky process, but nothing to shy away from.
Here's the low down:
Determine whether you want to roll over. As I said, the
times when it doesn't make sense to roll over are few and far
between. Most 401(k) plans have minimal investment options and
higher costs, making an IRA a better option.
"It's very rare that an individual would leave an employer and
want to keep the money in their 401(k). The only time this
happens is if the 401(k) plan has many different investment
choices -- meaning usually 30 or more -- the investment
performance has been very good, and expense ratios are very
There is one thing to keep in mind: Generally speaking, if you
retire at or after age 55, the IRS allows you to take money
out of a 401(k) without incurring an early-withdrawal penalty.
If you've rolled your money into an IRA, you're out of luck
until you're 59 1/2. If you're early in your career, this
probably isn't a consideration for you, because once you get
another job, you'll likely be able to roll your money into
your new company's 401(k). If this is a concern, though, talk
to your current plan's administrator.
Note: Whether you can leave money in an old employer's 401(k)
-- and whether you can roll money from an IRA into a new
employer's 401(k) -- is completely up to the employer. You may
not have a choice in the matter.
Decide where you want to put your money. You have to
roll into an IRA, but who houses that IRA is up to you.
When you leave, you're going to roll over to either a bank,
credit union, insurance company, mutual fund company, or big
brokerage firm. It's important that you find a custodian that
will give you a whole host of investment options, that are
fair in cost or low-cost, and that has had decent investment
performance. You also obviously want someone who can answer
the phone, answer your questions, and give you good service.
Once you're in that IRA, you have the option to convert it to
a Roth IRA. In 2010, anyone can convert a traditional IRA to a
Roth IRA, regardless of income. A Roth allows your money to
grow tax-free forever. There are, however, a few downsides:
You're required to pay taxes on the amount converted, and, if
you make more than $176,000 as a married couple filing jointly
or $120,000 as a single filer, you're not eligible to make the
maximum contribution to the account. That means while you can
convert the cash you currently have saved, you'll have to find
a new account, like a 401(k) or another traditional IRA, to
continue saving more.
Ask for a direct rollover. As you likely know,
withdrawing from a 401(k) early costs you big time: 10% right
off the top, plus the amount you pulled out is treated as
income for tax purposes. If your old 401(k) plan cuts you a
check, you're responsible for getting it to the new IRA within
60 days. If you're a day late, or there's a mistake with your
paperwork, you could be out of luck.
I hope you all find this information helpful. Please contact
me if you have any question regarding your 401k and or any
other financial question. Pablo Blanco.
SMEED CPA Adds Financial
Services To Help Clients With
Investments & Insurance
often we here at SMEED CPA are asked about financial issues
that impact our clients investments and their portfolios.
We always offered our opinion and suggestions but in order to
help our clients actually execute the changes we suggest,
SMEED has created a Financial Services division.
SMEED Financial Services, Inc. will be able to
work with both individual and business clients on their
investment portfolios and manage assets on their behalf.
SMEED Financial will include Michael Uadiale,
ACA, CPA, CGMA; and Pablo Blanco who has
recently joined SMEED and comes with over 18 years of
financial sales and advising experience with affluent
Watch your inbox and mail boxes for more specific information
on services SMEED Financial Services, Inc will make available
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Regards, Michael Uadiale, CPA,
Managing Partner, SMEED CPA,