401 K Rollover

If you've changed jobs or recently retired, you may be wondering what you should do with a 401(k) or other retirement savings account from your former employer. If this is your circumstance, you should consider a 401(k) rollover. A 401k retirement plan is a special type of account funded through pre-tax payroll deductions. The funds in the account can be invested in a number of different stocks , bonds , mutual funds or other assets, and are not taxed on any capital gains, dividends, or interest until they are withdrawn.

Upon employment separation, your former employer should provide you with information regarding your options. One of those options is to rollover your 401(k) funds into an IRA.

Here are simple steps to affect a 401(k) rollover:

• Open a rollover IRA. Any stock broker can help you with this or you can complete an IRA application online .
• Next, you should contact your former employer and notify your former employer's 401(k) plan administrator that you are rolling over your 401(K) assets to an IRA.
• Complete any distribution forms required by your former employer. Be sure to ask your former employer for a benefits contact name and phone number for follow-up questions.
• Confirm when your former employer or plan administrator will distribute the funds (varies according to each plan's requirements).

Despite this simple process, be mindful that there are strict 401(k) rollover rules. To avoid penalties or taxes being withheld, you must follow certain procedures and be aware of time limitations. In general, the 401k rollover rules state that if you have not yet reached 59-1/2, then lump sum payments that were "before-tax" when contributed by you to the 401-K plan are eligible for rollover. A 401(k) rollover can be distributed as a direct rollover or can be paid directly to you.

In a direct rollover, the funds in your 401k account are paid directly into your IRA and the 401(k) administrator is not required to withhold any income tax and you will not owe a penalty.

If you elect to be paid, it is critical that you are aware of potential tax penalties. When you receive your 401(k) distribution, you will notice that your former employer has withheld 20% in taxes. This withholding is a regulatory requirement. You may not actually owe the tax. You can avoid taxes and tax penalties if you deposit 100% of your 401k rollover distribution into your IRA account within 60 days of receiving the funds. Unfortunately, this means you must replace the 20% that was withheld for taxes with additional funds. When you file your taxes for the year you will be able to include the 20% withheld as Federal income tax paid.

Additional 401k information can be found at:

• http://partner.monster.com/401k/

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