Putting money aside in a 401(k) plan is one way to save for retirement while reducing your current tax bill. But what you do with that 401(k) when you leave your job or change jobs can have a profound impact on your retirement readiness and the size of your nest egg. Rolling over the money into an IRA preserves your tax shelter and allows you to continue saving.
Contact New Custodian
If you have a new custodian in mind for your 401(k) plan, start by contacting that new custodian. A number of financial institutions can serve as the custodian of a rollover IRA, including mutual fund companies, banks and brokerage firms. Contact the new custodian and let the representative know you want to roll over your 401(k) plan. The new custodian can provide you with the forms you need to make the transition smoothly and without any tax consequences. In order to avoid taxes and penalties, the money must move directly from the current 401(k) custodian to the new rollover IRA.
Contact Your Employer
When you leave your job, be sure to check with your employer about your 401(k) options. Some employers will allow you to keep your money invested in the company 401(k) plan even if you no longer work there. In fact, that might be the default option, so it is important to contact your employer if you want to roll the money over into an IRA account. Your former employer can provide you with the forms and paperwork you will need to move the money to the new IRA.
Mutual Fund Company
If you have an account with a mutual fund company, you can roll the funds from your 401(k) plan over to a self-directed IRA with the same company. If you wish, you can invest the rollover iRA in the same mutual funds you use for your personal accounts. That can make record keeping and performance tracking easier. Or you can choose different funds for your IRA to diversify your holdings and grow your money. No matter which option you choose, contact the mutual fund company and let them know you wish to roll your 401(k) plan over into a new IRA account. The company can provide you with the transfer form you need to make the transition.
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