Friday, April 26, 2019

Everything You Need to Know About IRA and 401K Rollovers

Planning for retirement? Then you’ve probably heard of or started a 401k. One of the biggest ways to save for retirement is to invest part of your income into a retirement plan like a 401k. Employers will offer a 401k match to encourage you to contribute to that plan. What happens when you leave that company? You may need to do a 401k rollover. Below is a quick guide to a few options when it comes to planning for your retirement.

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What is a 401k?
It’s a retirement savings plan which most people start contributing to through an employer. It allows employees to save and invest a portion of their paycheck before taxes are taken out and often times the company will match a certain percentage.

What is the difference between a 401k and IRA?
The quick-and-easy difference between retirement funds is that a 401K plan will be managed by a company’s administrator, choosing the mutual funds and other investments that are available to you and setting the rules about withdrawals. An IRA puts you in charge, giving you more options for investments to choose from.

What is a 401k-to-IRA rollover?
This is when you move money from a 401k to an IRA. No taxes need to be paid when you do a direct rollover to a Traditional IRA. Simply put, your money and assets just move from one type of account to another and keep all the tax benefits the same.

Should you rollover?
Here are three things to consider when deciding if you should do a rollover:
1. The fees
2. The quality of investments in your 401k compared to an IRA
3. The rules of the 401k plans when switching to a new job

If you let your money in your old 401k sit in the old account, it could cost you tens of thousands of retirement dollars if the new plan at the new job is better. But if you have a high quality 401k plan currently, you may want to leave your money to continue building.

If you are young, you should consider setting up a rollover strategy. If you change jobs a few times, consolidating your savings by rolling them into a single IRA plan will make it easier to manage your retirement money. If you need help setting up an IRA plan, McHenry Savings Bank is here to help you.

When it comes to all your financial needs, visit McHenry Savings Bank and learn how you can save or speak with an expert today by calling 815-385-3000.