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401k & IRA Rollovers

How To Rollover A 401k

Reasons To Rollover A 401k

Roth IRA vs Traditional IRA Rollover

Reasons To Not Rollover A 401k

Taking Withdrawals from a 401k

Types Of IRAs

401k to IRA Rollovers

401k Rollover – Quick Start Guide

Questions about 401k Rollovers?

Questions about retirement?  After you’ve explored your options, you may still have questions about what to do with your retirement plan money. We are the areas IRA specialists! 

Taking Withdrawals from a 401k

Putting as much as you can afford into your 401k makes sound fiscal sense when it comes to planning for retirement. But once money goes into a 401(k), it is difficult to withdraw it without paying taxes on the withdrawal amounts.

Make sure that you still save enough on the outside for emergencies and expenses you may have before retirement. Do not put all of your savings into your 401(k) where you cannot easily access it, if necessary.

The earnings in a 401(k) account are tax-deferred in the case of traditional 401(k)s and tax-free in the case of Roths. When the traditional 401(k) owner makes withdrawals, that money (which has never been taxed) will be taxed as ordinary income. Roth account owners have already paid income tax on the money they contributed to the plan and will owe no tax on their withdrawals as long as they satisfy certain requirements.8

Both traditional and Roth 401(k) owners must be at least age 59½—or meet other criteria spelled out by the IRS, such as being totally and permanently disabled—when they start to make withdrawals.

Otherwise, they usually will face an additional 10% early-distribution penalty tax on top of any other tax they owe.9

Some employers allow employees to take out a loan against their contributions to a 401(k) plan. The employee is essentially borrowing from themselves. If you take out a 401(k) loan, please consider that if you leave the job before the loan is repaid, you’ll have to repay it in a lump sum or face the 10% penalty for an early withdrawal.

Required Minimum Distributions

Traditional 401(k) account holders are subject to required minimum distributions, or RMDs, after reaching a certain age. (Withdrawals are often referred to as “distributions” in IRS parlance.)

After age 72, account owners who have retired must withdraw at least a specified percentage from their 401(k) plans, using IRS tables based on their life expectancy at the time. (Prior to 2020, the RMD age was 70½ years old.)

People who are still working may not have to take RMDs.10

Note that distributions from a traditional 401(k) are taxable. Qualified withdrawals from a Roth 401(k) are not.

Roth IRAs, unlike Roth 401(k)s, are not subject to RMDs during the owner’s lifetime.
 

Traditional 401(k) vs. Roth 401(k)

When 401(k) plans became available in 1978, companies and their employees had just one choice: the traditional 401(k). Then, in 2006, Roth 401(k)s arrived. Roth IRAs are named for former U.S. Senator William Roth of Delaware, the primary sponsor of the 1997 legislation that made the Roth IRA possible.11

While Roth 401(k)s were a little slow to catch on, many employers now offer them. So the first decision employees often have to make is between Roth and traditional.

As a general rule, employees who expect to be in a lower marginal tax bracket after they retire might want to opt for a traditional 401(k) and take advantage of the immediate tax break.

On the other hand, employees who expect to be in a higher bracket after retiring might opt for the Roth so that they can avoid taxes on their savings later. Also important—especially if the Roth has years to grow—is that there is no tax on withdrawals, which means that all the money the contributions earn over decades of being in the account is tax-free.

As a practical matter, the Roth reduces your immediate spending power more than a traditional 401(k) plan. That matters if your budget is tight.

Since no one can predict what tax rates will be decades from now, neither type of 401(k) is a sure thing. For that reason, many financial advisors suggest that people hedge their bets, putting some of their money into each.

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