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Tips for a Successful 401(k) Rollover

Posted by Leslie L. Horgan | Client Service Specialist
November 6, 2013

When someone leaves an employer to retire or join another employer, there are often decisions about what to do with their 401(k). There are several 401(k) rollover options and it’s not always as simple as just rolling it into an IRA.

Here are some tips investors should consider before making a decision about how to rollover a 401(k).

Tip #1: Use the Rollover as an Opportunity to Evaluate Your Financial Plan

Rolling over a 401(k) involves creating a new account and choosing new investments. An investor should also use the opportunity to review all of their investments and evaluate their long-term goals. It’s a perfect time to think about investment objectives, risk tolerance, and to determine whether current funds or money managers are meeting the plan’s needs.

Think of a 401(k) rollover as an opportunity to enhance your financial plan and investments.

Tip #2: Understand the 401(k) Rollover Options

Most investors who are retiring should consider rolling their 401(k) into an IRA. However, if a person is just moving to a different company, there might be an opportunity to roll the old 401(k) into the new employer-sponsored 401(k). This could allow someone to consolidate accounts while also reaping the potential benefits of their new employer’s plan. Investors and retirees should consult their financial advisors to explore this possibility.

Tip #3: Resist the Temptation to Cash Out

Cashing out of a 401(k) and taking it as a distribution means potentially incurring a sizable tax burden. Remember, 401(k) distributions are taxable at ordinary income rates, so before taking out a large distribution it’s important to speak with a financial advisor. There might be another, more tax efficient way to meet cash flow needs.

Note: If you’re below the age of 59 ½, distributions received are also subject to an early distribution penalty of 10% additional tax, unless an exemption applies.1

Tip #4: Take Time To Do Money Manager Research

There are probably several investment options when rolling over a 401(k) plan. There are hundreds of money managers and investment programs out there, but the challenge is filtering through them to find one that makes the most sense. Finding a financial advisor that can help conduct objective research on various money managers is ideal.

Tip #5: Consider Rolling the Assets Over “In-Kind”

Rolling over assets “in-kind” means transferring them from a 401(k) and into a new IRA without selling them. That allows for maintaining market exposure throughout the rollover process, and will give the new money manager or financial advisor the ability to decide when to sell.

Tip #6: Determine Your IRA Beneficiaries

It’s important to name the beneficiaries on the new IRA as soon as it’s established. An investor can always change these in the future.

Tip #7: Don’t Hesitate to Ask for Help

An investor can help avoid making common 401(k) rollover mistakes by consulting with a financial advisor. At WrapManager, our Wealth Managers can help investors create an investment plan, determine rollover options, and evaluate and choose money managers who might make sense for their plan. Call us today at 1-800-541-7774.

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Leslie L. Horgan Client Service Specialist
By Leslie L. Horgan

Leslie is a Client Service Specialist at WrapManager, Inc.


1 IRS.Gov

Additional Disclosure

The views and opinions expressed do not constitute specific tax, legal, or investment or financial advice to, or recommendations for, any person, and the material is not intended to provide financial or investment advice and does not take into account the particular financial circumstances of individual investors. Before investing in any investment product, investors should consult their financial or tax advisor, accountant, or attorney with regard to their specific situation.

To the extent this presentation includes any federal tax advice, the presentation is not intended or written by WrapManager, Inc. to be used, and cannot be used, for the purpose of avoiding federal tax penalties. WrapManager, Inc. does not advise on any income tax requirements or issues. Use of any information presented by WrapManager, Inc. is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

Opinions expressed are those of WrapManager, Inc. and are subject to change without notice.

Retirement Planning Investment Planning 401(k) Rollover