401(k) rollover: What is a 401(k) rollover, why a 401(k) rollover is smart, and when to rollover your 401(k) from a previous employer

In this post we’re talking 401(k) rollovers, and why you need to do a 401(k) rollover when you switch jobs

Retirement planning is an important part of financial security, and having a 401(k) can be a great way to save for the future. But what happens when you change jobs? In this blog post, we’ll discuss why doing a 401(k) rollover can be beneficial when you switch employers and how to go about it.

First of all, let’s start with what a 401(k) is. A 401(k) is a type of retirement savings plan that is offered by many employers. You can contribute a portion of your paycheck to your 401(k) on a pre-tax basis, and the money in your account grows tax-free until you withdraw it in retirement.

Now, one of the big benefits of a 401(k) is that many employers will match a portion of your contributions. This means that if you put $1 into your 401(k), your employer might add 50 cents, or even a full dollar, to your account. This is essentially free money that you can use to help build your retirement savings, so it’s definitely worth taking advantage of if your employer offers a match.

But what happens if you change jobs? Well, that’s where 401(k) rollovers come into play. A 401(k) rollover is the process of transferring the money in your old 401(k) account to a new one when you switch jobs. This way, you can keep your retirement savings in one place, instead of having multiple accounts scattered around.

So, why should you do a 401(k) rollover when you change jobs? Well, there are a few reasons. First, having all of your retirement savings in one place makes it easier to keep track of your investments and monitor their performance. Second, rolling over your 401(k) can help you avoid taxes and penalties. If you don’t roll over your 401(k) when you switch jobs, you might be required to take a distribution, which means you’ll have to pay taxes on the money you’ve withdrawn, plus a 10% early withdrawal penalty if you’re under age 59 and a half.

Finally, rolling over your 401(k) can also give you more investment options. When you have multiple 401(k) accounts, you might be limited in terms of the investment options you have. But by rolling over your 401(k), you can choose from a wider range of investments, which can help you create a more diversified portfolio.

So, how do you start your 401(k) rollover? First, you’ll need to request a rollover distribution from your old 401(k) plan. You can do this by contacting your former employer’s HR department or the company that administers the plan. Then, you’ll need to open a new 401(k) account with your new employer, or with an individual retirement account (IRA). Finally, you’ll need to arrange for the money in your old 401(k) to be transferred directly to your new account.

It’s important to note that you have 60 days from the date you receive the distribution to complete the rollover. If you don’t complete the rollover within 60 days, the distribution will be considered a taxable distribution, and you’ll have to pay taxes on it, plus any applicable penalties.

A 401(k) rollover is a smart move if you’re changing jobs. By rolling over your old 401(k) into a new one, you can simplify your retirement savings, avoid taxes and penalties, and enjoy more investment options. So, if you’re thinking about changing jobs, be sure to consider a 401(k) rollover as part of your financial plan.

Want to get more comfortable with financial terms this year? Download our FREE Personal Finance Cheat Sheet to get up to speed on all the terms you need to know, and subscribe to our newsletter for more personal finance tips.