What is a 401K Rollover? A rollover?

The 401k investment plan is a common scheme in the United States and the 401k rollover is a large part of the plan. This scheme allows an employee to direct a part of their salary into a pension fund which they can then cash in upon retirement. The additional benefit of this is that the employer can also make
contributions to this plan and it is tax-free. But what happens if you change jobs? This is where the 401k rollover comes into play.


If you change jobs there are several options relating to the 401k rollover facility.
A direct IRA Rollover means that the contributions held in your retirement account
can be transferred into an Individual Retirement Account. The money does not come
into your hand as your old employer will wire it straight into your personal
account. This method has benefits by way of no penalties and the taxes are not
withheld.

If you have stocks in your last employer's company your contributions can be handledone of two ways. The first is that you can transfer the stocks directly into your  Individual Retirement Account without the stocks being liquidated. The second option is that you sell the stocks and pay the rollover into your account within a 60 day  period. If you fail to place the cash in the account within the 60 days then you will have to pay tax on it.


Alternatively you can move your exiting 401k plan to your new employer, if they
accept the 401k rollover. This only usually works if you have a new job before you
leave your old one. Take the time to check out the new employer's investment options
to decide if this is the best option for you.


The final option is to cash in the funds that are held in your 401k scheme. This
can be quite a costly move as employer's a legally bound to withhold 20% of the
funds for tax purposes. You may also have to pay income tax and a 10% penalty for
taking the cash out before you retire.


One of the big questions facing many people today is the options for self employed
retirement plans. There are many more freelancers and self-employed people than
there were ten years ago. There is a 401k option for self employed people so that
they can save for their retirement too.


This plan, known as 401k (Solo) is not a well-known scheme but it has many benefits.
Firstly you can contribute up to 100% of the first $15,500 in a year. You can then
make contributions or deduct payment up to 25% over this initial amount. If you
reach the cap amount of $225,000 in one year, it may be best to change self
employed retirement plans as you cannot accrue any more savings after this
threshold is reached. Another advantage of the 401k(Solo) is that you can pay
less or nothing in the lean years. You can also borrow money from you account
which does not count as a withdrawal which means there are no penalties.


If you are about to change jobs it is worth considering your 401k rollover options
and make a decision about which is the right one for you. It may be worth speaking
to a professional pension advisor to discuss the best options.

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