Question: I just started my new job and my new employer will not match my contributions for another year. Should I still contribute to the 401k?
What should I do with my 401K from my old employer?
Since they aren’t matching your contribution it might be wise to put the money into a Roth Individual Retirement Account (IRA) for the time being, you will have a better selection of funds and it will help diversify your retirement monies, as you can withdraw funds from your Roth tax-free during retirement. Since your contributions to a 401K will be ongoing. You will mass a substantial amount of 401K funds that WILL be taxable during retirement. Contributing to a Roth and a 401K will give you the diversity of having tax-free and taxable funds to withdraw from during retirement.
As far as your 401K from your past employer: You can do a 401K rollover into an IRA at a brokerage such as Vanguard or Fidelity in which you can mange the funds yourself. If you don’t feel confident in managing the mutual funds on your own, you can contact a fund company or even your local Bank to have it actively managed. Personally I would roll them over into an IRA at Vanguard and pick a diverse group of funds. The rollover process is really simple and the Vanguard Customer Service team can help you if need be. I rolled over an IRA that I started in college into some Vanguard funds because I wasn’t getting a good return with the Bank and I just picked a few funds and “let it ride”.
If you need help picking funds let me know!
To submit your questions: Email me at financial.focus@yahoo.com
For my fellow bloggers: Feel free to use the comments to post questions or add useful tidbits.
Showing posts with label Roth IRA. Show all posts
Showing posts with label Roth IRA. Show all posts
Friday, February 1, 2008
I am changing jobs, what should I do with my 401K from my previous employer?
You have decided to change jobs! Congrats! God has a plan for you and following his will, always leads to great things.
Now that you have made the move you have three choices:
1. Cash-out the 401K and spend it on unnecessary items.
2. Leave the money in your previous employers plan
3. Rollover your 401K into an IRA ***The Best Option! ***
Starting with #1: NEVER CASH-OUT YOUR 401K! This is a NO NO! Do not withdraw money from your retirement! Do I have to repeat that……Do NOT cash-out your retirement fund?
If you withdraw your money in a lump sum from a previous employer’s retirement fund, you must pay taxes on the money you withdraw. On top of those taxes, your employer is required to take a 20% withholding from your lump sum, and if you are under age 59 ½, you may also be forced to pay a 10% penalty tax.
Now do you understand why it is important to NOT cash-out your 401K?
Oh, not to mention you will have to work for the rest of your life and never have the pleasure of retiring and leaving that job that you hate! And if you think Social Security will take care of your retirement…..Guess What….THINK AGAIN!
Your second option is to leave the money in your old company’s retirement fund, which isn’t the greatest ideal. Many 401k plan administrators charge record keeping and other fees to manage your account, regardless of whether you are still with the company. These fees can take a significant bite out of your return, especially if you have accounts maintained at several different employers.
Consolidating all of you old 401K accounts into an IRA is your best option and leads us to #3.
If you decide to roll it over (YAY!!!!), you may have the option of rolling your assets into
either an IRA (Individual Retirement Account) or your new employers plan. To avoid paying taxes and penalties, you should have these assets transferred directly to another
IRA custodian. This rollover will still have to be reported to the I.R.S. One
downside is that your retirement rollover cannot be rolled into a Roth IRA.
Since I am sure you have decided to rollover your 401k instead of choosing options 1 & 2. Stay tuned for information on how to roll the funds into an IRA.
Now that you have made the move you have three choices:
1. Cash-out the 401K and spend it on unnecessary items.
2. Leave the money in your previous employers plan
3. Rollover your 401K into an IRA ***The Best Option! ***
Starting with #1: NEVER CASH-OUT YOUR 401K! This is a NO NO! Do not withdraw money from your retirement! Do I have to repeat that……Do NOT cash-out your retirement fund?
If you withdraw your money in a lump sum from a previous employer’s retirement fund, you must pay taxes on the money you withdraw. On top of those taxes, your employer is required to take a 20% withholding from your lump sum, and if you are under age 59 ½, you may also be forced to pay a 10% penalty tax.
Now do you understand why it is important to NOT cash-out your 401K?
Oh, not to mention you will have to work for the rest of your life and never have the pleasure of retiring and leaving that job that you hate! And if you think Social Security will take care of your retirement…..Guess What….THINK AGAIN!
Your second option is to leave the money in your old company’s retirement fund, which isn’t the greatest ideal. Many 401k plan administrators charge record keeping and other fees to manage your account, regardless of whether you are still with the company. These fees can take a significant bite out of your return, especially if you have accounts maintained at several different employers.
Consolidating all of you old 401K accounts into an IRA is your best option and leads us to #3.
If you decide to roll it over (YAY!!!!), you may have the option of rolling your assets into
either an IRA (Individual Retirement Account) or your new employers plan. To avoid paying taxes and penalties, you should have these assets transferred directly to another
IRA custodian. This rollover will still have to be reported to the I.R.S. One
downside is that your retirement rollover cannot be rolled into a Roth IRA.
Since I am sure you have decided to rollover your 401k instead of choosing options 1 & 2. Stay tuned for information on how to roll the funds into an IRA.
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