How To Rollover Your 401k For Retirement

Most workers that are familiar with the government know that, most likely, Social Security will not do much for them when they reach retirement age, so establishing a 401k is a common practice. In fact, 401k are so common that most jobs set up deposits automatically and even contribute them as a job benefit. Knowing when to rollover a 401k, especially when switching jobs, means careful thought and planning.

Do not cash it out

Some people see a 401k as a savings account, to be dipped in when needed, and these people periodically make withdrawals on the account. However, the investment companies and IRS take a massive chunk for early withdrawal, sometimes as high as 40 percent. Of course they do not complain too much, because it is free money. Also, the money someone makes in a 401k gives substantial tax breaks, but if withdrawn, those discounts are gone.

Process of rolling over

First, one needs to open another 401k account. Usually, if entering a new job, this is done for them. Once open, the IRS needs to stay informed that the opener is rolling over funds, otherwise it might count as income for the year. IRS Form 1099-R gives them the information, so after filling it out, funds should be available for rollover within two months. Once the rollover occurs, one needs to fill out IRS form 5498. This informs the IRS that the funds were deposited; otherwise they might think the opener just walked off with them.

Knowing how to successfully manipulate and use a 401k account can save someone tens or even hundreds of thousands of dollars in the future. The research will probably be some of the most profitable research someone could ever do.

This research will probably be some of the most profitable you will ever do

by Denise Oliver, Finance writer