Broker Check

401(K) Rollovers

Understanding 401(k) Rollovers: A Guide to Making Informed Decisions

Understanding 401(k) Rollovers: A Guide to Making Informed Decisions

At State & Shore Wealth Planning, we want to provide you with essential information to help you navigate the process of rolling over your retirement savings. Whether you're changing jobs, retiring, or simply considering your options, understanding the intricacies of 401(k) rollovers is crucial for making informed decisions that align with your financial goals.

What is a 401(k) Rollover?

A 401(k) rollover involves transferring the funds from your existing 401(k) plan to another retirement account, such as another 401(k) or an Individual Retirement Account (IRA). This process can help you consolidate your retirement savings and may offer more investment options or lower fees than your current plan.

When Should I Rollover My 401(k)?

When Should I Rollover My 401(k)?

Rollovers are particularly appropriate when you're changing employers and want to take your retirement savings with you or if you wish to move your savings to an account with different investment options or lower administrative fees. It's also a viable option if you're seeking to convert a traditional 401(k) into a Roth IRA for its tax advantages. Roth IRAs, for example, tax contributions, so the withdrawals you make in retirement are tax-free.

Rollover Chart

401(k) Legal Considerations

401(k) Legal Considerations

The IRS has specific rules governing 401(k) rollovers to ensure they are executed correctly without triggering unnecessary taxes or penalties. It's important to follow the correct procedures for a direct rollover, where funds are transferred directly between trustees, to avoid tax implications.

Advantages of a 401(k) Rollover

Consolidation of Retirement Funds: Rolling over your 401(k) can simplify your finances by consolidating multiple accounts into one, making it easier to manage and track your retirement savings.

  • Access to a Broader Range of Investment Options: IRAs often offer more flexibility in investment choices compared to 401(k) plans, potentially leading to better growth opportunities.
  • Potential Tax Benefits: Converting a traditional 401(k) to a Roth IRA could offer tax-free growth and withdrawals, subject to certain conditions. If you’ve recently changed jobs, it’s a good time to evaluate what your options are.

Rollover Options

  • Roll 401k into IRA: This is a common choice for many, offering a wider array of investment options and potentially lower fees.
  • Convert 401k to Roth IRA: This option requires paying taxes on the converted amount but offers tax-free growth and withdrawals in retirement.

Can You Roll a 401k into a Roth IRA? 

Yes, it's possible to roll over a traditional 401(k) into a Roth IRA, which may be advantageous for those seeking tax-free income in retirement.

IRA Benefits Over 401k

IRAs often provide more investment options and flexibility compared to 401(k) plans, including a wider selection of stocks, bonds, and mutual funds. Additionally, IRAs can offer lower fee structures and the potential for tax-free growth with a Roth IRA.

Need Help with a 401(k) Rollover?

Need Help with a 401(k) Rollover?

Your retirement account is more than the money in it–it represents the lifestyle you will enjoy in retirement and your life’s work leading up to retirement. At State & Shore, we want to see you make the most of that. Since retirement planning is highly individualized, what may be beneficial for one person may not be for another. We recommend consulting with one of our financial advisors to discuss your specific situation and goals. Let’s get you set for success together! Contact us today.

Have a Question?

Thank you!