One of the best ways to save for retirement and to plan for your future is to invest in a 401(k) – a way of saving for retirement that is tax-deferred. Because 401(k)s are employer-sponsored, over the years, things with your job may change, raising questions about 401(k) funding and options. If you are leaving your job for a new employer, consult your financial advisor for a full understanding of each of your distribution options before acting.
What Are My Distribution Options?
As explained by Bankrate.com, a 401(k) rollover refers to a direct transfer of the money in your retirement account to a new plan or IRA. As opposed to rolling over to a new workplace plan, you may be permitted to stay within your current workplace plan (although you won’t be allowed to continue making contributions), or you can cash out.
Are There Tax Consequences for Distribution Options
If you decide to cash out your 401(k), you’ll face some tax consequences. To be sure, you may face a withdrawal penalty depending on your age, and you’ll also be subject to both state and federal taxes. Of course, cashing out also means that you’re losing out on tax-deferred growth.
If you decide to roll over a 401(k), you won’t owe any taxes on the rollover transaction itself. The IRS permits one rollover per 12-month period and allows a 60-day window of time to roll over a retirement plan distribution into another plan.
Learn More by Meeting with Harvest Financial Planning, LLC Today
Understanding your various 401(k) options when you are planning on terminating your relationship with your current employer can be difficult. To add clarity and guidance, schedule a meeting with a Certified Financial Planner™or investment advisor representative at Harvest Financial Planning, LLC. We have the experience and financial savvy you’re looking for. Reach us today online or by phone to get started.
*This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.