Put that old 401K back in use!

I've received numerous questions as to the how and why to rollover a 401K so here goes.....As retirement approaches, money decisions become increasingly major. One big decision concerns what to do with the money in your old company retirement plan.

Consider a direct rollover. For most people, the most attractive option is an IRA rollover. In other words, you transfer the money from your 401(k), 403(b) or 457 plan into an IRA. It is not hard to accomplish, provided you have the guidance of a qualified financial advisor.

Basic steps:

A direct rollover is not the same thing as a direct payment to you. Yes, your employer can actually write you a check for the full amount of your 401(k) account, but 20 percent of that money will be withheld for taxes.

Do you want to avoid that 20 percent withholding? A direct rollover is the solution. It is a "trustee to trustee" rollover, which works like this: your employer writes a lump sum check not to you, but in the name of the trustee or custodian of the IRA that you are creating to hold the funds. You then let your company’s retirement plan administrator know that you’ll be doing a direct rollover. (There is almost always a form to be filled out, on which you can state the specific instructions for the distribution check.)

Your company sends you the check payable to the IRA trustee, with no withholding, and you have 60 days to deposit it in the IRA; day 1 is the day after you get the check. (Sometimes a wire transfer of assets occurs instead, between one investment custodian and another.) If you don’t complete the direct rollover in 60 days, you will pay tax on the entire amount. (There’s no grace period for weekends or holidays.)

If you want to leave work before age 59½ or you own shares of company stock, you should consider the tax implications created by those circumstances before attempting any kind of rollover.

When you leave a company, you usually have three options with your retirement plan: you can leave the money in the plan, roll it over into a new plan (if you elect to keep working for a new employer) or do a direct rollover into an IRA.

What you can and can’t do:

(Pay attention)
Is it time to roll over your retirement money? If that time is here or getting closer, you need to be very careful with what could possibly be the largest lump sum you ever receive. Be sure to ask a qualified financial advisor about your IRA rollover options today.

You can make unlimited direct rollovers of your retirement account assets, and you can add the money in your retirement plan to an IRA you already have, if you don’t intend to go back to work and put those assets into a new employer plan. Once your retirement plan assets are in an IRA, you can invest them in practically any way you choose. You can also set up your IRA to make systematic payments to you.

Good luck.

Contact Rodney Gilbert at rtgilbert@ft.newyorklife.com or (404)729-6485 if you have any questions.