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What To Do With Your 401k Money?

Posted on August 26, 2010
Filed Under Investment | Leave a Comment

401k’s in general are pretty confusing. The how’s and why’s quickly add up as you start investing. Then add into the mix the fact that when you decide to leave an employer you need to figure out what to do with your 401k. You need to decide because although this money is yours your current employer is actually the one that manages the account on your behalf and so you need to know your options. Luckily you don’t have too many options to choose from but it is important that you know the difference between each one.

One option that you can choose and is quite common is a 401k rollover into an IRA. An IRA or otherwise known as an Individual Retirement Account works similar to a 401k however you have a lot more investing options. They do carry different rules in regards to borrowing against your retirement funds and other situations, but it is a good option to consider. It is also possible for you to have this type of account if you intend to be self employed. Even those that are self employed need to invest for their future.

The other option you may choose is to rollover to your new employers 401k plan. This is usually a pretty simple transfer and requires a bit of paperwork. This information will go from your previous employer to your new employers 401k administrator so that they can start the process.

As long as there are no issues with the paperwork your funds will then be released into the new plan. It is very important that no matter what option you choose you fill out all of the paperwork correctly. More often than not rollovers are held up due to inaccurate information on the paperwork. Since you only have a 60 day window to perform the rollover you really want to make sure you dot your i’s and cross your t’s.

Also, if you do decide to transfer it over to a new employer you will want to make sure that they allow rollovers. If the employer does not allow it then you can have a check sent to you but it is important to know that you have 60 days to deposit the money and on a cash out your previous employer will automatically take 20% to pay to the IRS. Cashing out is the last thing you want to do.

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