Where Can I Transfer My 401k

Student Loan Debt And Saving For Retirement

One of the more revolutionary changes included in the Secure 2.0 Act of 2022 is the option for employer plans to credit student loan payments with matching donations to 401 plans, 403 plans or Simple IRAs. Government employers will also be able to contribute matching amounts to 457 plans.

This means that people with significant student loan debt can still save for retirement just by making their student loan payments, without making any direct contributions to a retirement account.

The new regulation will take effect in 2025.

If The Assets Are In A Retirement Account When You Die The Tax Implications Arent The Same As If You Take The Money Out Beforehand

Once a person successfully reaches retirement, his or her financial priorities naturally undergo a shift. Where before you were in build up my portfolio mode, now youre in spend down my portfolio mode. But carefully, of course, because you dont want to run out of assets before you run out of time, and it might just be nice to leave a little something to your children.

In this segment of a Motley Fool Answers mailbag episode, hosts Alison Southwick and Robert Brokamp with help from Megan Brinsfield, director of Foolish Planning with our sister company, Motley Fool Wealth Management offer some advice to a retired listener who is planning ahead. He and his wife have a reasonable-sized IRA, and hed like to ensure that when those assets get handed down, their heirs are in the best tax position possible. Nice thought, respond our experts, and we can help you with that. But you may just want to rethink your priorities.

A full transcript follows the video.

This video was recorded on March 26, 2019.

Alison Southwick: Next question comes from William. Im almost 69, and between my wife and me we receive $21,000 from a pension and $28,000 from Social Security each year. Our IRA is valued at $130,000 and we have other investments also worth $130,000.

Southwick: Theyll never appreciate it.

Brinsfield: Yeah.

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American Hartford Gold: Best Buyback Program

Due to their commitment to long-term stability and family financial security, some customers favor family-owned businesses like American Hartford Gold. This well-known company has been ranked among the top industries for the past six years. Despite being new, American Hartford Gold has grown its clientele and increased its level of trust.

Los Angeles and Woodland Hills, California, are home to the American Hartford Gold corporate offices. Even after delivering more than $500 million worth of precious metal products, the company is still committed to helping people diversify and protect their gold and silver assets.

The company can swiftly ship the precious metal to your door and offer precious metal IRAs and 401k rollovers. Your prized possessions will also be stored as part of the service in third-party locations like the Delaware Depository Service. Particularly concerning physical gold, you cannot take the chance of losing or having these precious metals stolen.

American Hartford Group has earned its trust by giving customers the most recent information on gold and other precious metals. Additionally, you can discover 24/7 customer support staff while exploring their website. You will be able to locate pertinent data and resources in a short time as a result.

Pros

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Do I Have To Pay Taxes When Rolling Over A 401

Whether you owe taxes on a rollover depends on whether youre changing account types . Generally, if you move a traditional 401 account to a Roth IRA, you could create a tax liability. Here are a few scenarios:

• If youre rolling over money from a traditional 401 to another traditional 401 or traditional IRA, you wont create a tax liability.
• If youre rolling over a Roth 401 to another Roth 401 or Roth IRA, you wont create a tax liability.
• However, if youre rolling a traditional 401 into a Roth IRA, you could create a tax liability.

Its also important to know that if you have a Roth 401 that has any employer matching funds in it, those matching funds are categorized as a traditional 401 contribution. So if you transfer a Roth 401 with matching funds into an IRA, youll need to create two IRA accounts a traditional IRA and a Roth IRA to avoid any tax issues during the rollover.

Of course, youll still need to abide by the 60-day rule on rollovers. That is, you have 60 days from the date you receive a retirement plan distribution to roll it over into another plan, according to the IRS. Taxes generally arent withheld from the transfer amount, and this may be processed with a check made payable to your new qualified plan or IRA account.

Roth 401 To Roth Ira Conversions

If your 401 plan was a Roth account, then it can only be rolled over to a Roth IRA. The rollover process is straightforward. The transferred funds have the same tax basis, composed of after-tax dollars. This is not, to use IRS parlance, a taxable event.

However, you should check how to handle any employer matching contributions, because those will be in a companion regular 401 account and taxes may be due on them. You can establish a new Roth IRA for your 401 funds or roll them over into an existing Roth.

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Example Of A Rollover

For example, River has decided to request an indirect rollover of $10,000 from their 403. Their plan’s trustee withholds 20%. River gets a check for $8,000. Then, they have to come up with $2,000 from other sources, or their rollover will only be $8,000. The $2,000 will be taxable income and subject to an early distribution penalty of 10% if they are under age 59½.

With indirect rollovers, the IRA owner gives the funds via check to the account owner, and the funds must be re-deposited into the new IRA within 60 days to avoid penalty.

The Limitations On Retirement Plans Can Prevent You From Doing What You Want

401 plans can be an effective way that workers can save toward their retirement. However, many employees dont like the investment choices that their employers 401 plans allow them to make, and they would prefer to move money out of their 401 plan accounts into an IRA in their own name. Most employer plans dont allow employees to transfer money from a 401 account to an IRA while theyre still working, but a few do offer what are known as in-service rollovers that make that option available to a limited number of workers.

The general rule: No rollover while workingWorkers generally arent allowed to take money out of their 401 plan accounts while theyre still working. Limited exceptions apply for hardship withdrawals, but workers arent allowed to take those withdrawals and roll them over into an IRA. Similarly, money ta ken out of a 401 for uses like a first-time home purchase or educational expenses might qualify for exceptions to the 10% penalty for early withdrawals, but they dont open the door to IRA rollovers.

If you do take a 401 withdrawal and deposit the proceeds into an IRA, the IRS will treat it as a taxable distribution followed by an IRA contribution. The distribution will be taxable and subject to an early withdrawal penalty if appropriate, and the contribution will be subject to normal IRA limitations. If youre not allowed to make an IRA contribution in that amount, additional penalties will apply.

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Roth Ira Income Limits

Anyone can contribute to a traditional IRA, but the IRS imposes an income cap on eligibility for a Roth IRA. Fundamentally, the IRS does not want high earners benefiting from these tax-advantaged accounts. In 2021 and 2022, the annual contribution limit for IRAs is $6,000 or $7,000 if you are age 50 or older. For 2023, the limit increases to $6,500, or $7,500 if you are 50 or older.

The income caps are adjusted annually to keep up with inflation. In 2022, the phaseout range for a full annual contribution for single filers is a modified adjusted gross income ranging from $129,000 to $144,000 for a Roth IRA. For , the phaseout begins at $204,000, with an overall limit of $214,000.

In 2023, the income phase-out range for taxpayers making contributions to a Roth IRA increases to $138,000 to $153,000 for singles and heads of households. For married couples filing jointly, the income phase-out range is increased to $218,000 to $228,000.

And this is why, if you have a high income, you have another reason to roll over your 401 to a Roth IRA. Roth income limitations do not apply to this type of conversion. Anyone, regardless of income, is allowed to fund a Roth IRA via a rolloverin fact, it is one of the only ways. The other way is converting a traditional IRA to a Roth IRA, also known as a backdoor conversion.

Exceptions To Additional Taxes

You dont have to pay additional taxes if you are age 59½ or older when you withdraw the money from your SIMPLE IRA. You also dont have to pay additional taxes if, for example:

• Your withdrawal is not more than:
• Your unreimbursed medical expenses that exceed 10% of your adjusted gross income ,
• Your cost for your medical insurance while unemployed,
• Your qualified higher education expenses, or
• The amount to buy, build or rebuild a first home

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Benefits Of Rolling Over Your 401k To An Ira

A common misconception about 401k plans is that if you leave your funds in the account after leaving the employer, you will continue to receive matching contributions or continue to vest the previously added match. We hate to be the bearers of bad news, but thats not the case. Not only will you not receive any matching contributions, but you wont be able to contribute to your old 401k at all.

So for most, the decision is clear: roll over your 401k assets into an IRA.

However, there are specific scenarios when a cash-out might make sense, such as if you own stock in your company in your 401k. Additionally, some scenarios may cause high-income earners to encounter a taxable situation when attempting a backdoor Roth conversion after rolling over a 401k into an IRA. If you think this might apply to you, talk to your financial advisor about your rollover options.

Keeping Your 401 With A Former Employer

If your ex-employer allows it, you can leave your 401 money where it is. Reasons to do this include good investment options and reasonable fees with your former employers plan. Keep in mind that you may not be able to ask the plan administrator any questions, you may pay higher 401 fees as an ex-employee, and you cant make additional contributions.

Another noteworthy thing to consider is that your former employer could decide to move your old 401 account to another provider. If your balance is between $1,000 and $5,000 and your former employer wants to close your old 401 account, your former employer can, but it is required to transfer the balance to an IRA in your name and notify you in writing. For balances under $1,000, your former employer can send you a check, which you’d need to put in a retirement account within 60 days to avoid taxes and penalties.

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You Can Still Roll Over Cash Outs From A 401

If you do receive a cash out from your previous 401, it may be wise not to spend that check. For example, if you spend a $900 cash out instead of rolling it over into an account earning 8% tax-deferred earnings, your retirement fund could miss out on more than $8,000 in growth after 30 years*. The bigger your cash out, the higher your opportunity cost may be.

If youre able to open an IRA that accepts the cash out check within 60 days from your last day of employmentconsider taking advantage of an indirect rollover to recoup withholdings and avoid paying penalties.

Youll have to deposit the cash out check as an indirect rollover. Any portion of the gross amount of the cash out that you do not roll into an IRA will be considered taxable income to you. Therefore, you should also deposit any federal and state withholdings originally taken from your cash out distribution and roll that into your IRA as well. If you do this within the 60-day period following your cash out distribution, the rollover amount will not be taxable to you and the withholding on the distribution will be used towards any taxes you owe to the IRS when you file your next tax return. If you do not owe taxes, the withholdings will be returned to you via a tax refund.

To help avoid any issues, we think its smart to review your distribution options early after you terminate employment, and request a rollover distribution to a qualified plan or IRA of your choice before your employer forces you to take one.

How The Rollover Is Done Is Important Too

Whether you pick an IRA for your rollover or choose to go with your new employer’s plan, consider a direct rolloverthats when one financial institution sends a check directly to the other financial institution. The check would be made out to the new financial institution with instructions to roll the money into your IRA or 401.

The alternative, having a check made payable to you, is not a good option in this case. If the check is made payable directly to you, your plan administrator is required by the IRS to withhold 20% for taxes. As if that wouldn’t be bad enoughyou only have 60 days from the time of a withdrawal to put the money back into a tax-advantaged account like a 401 or IRA. That means if you want the full value of your former account to stay in the tax-advantaged confines of a retirement account, you’d have to come up with the 20% that was withheld and put it into your new account.

If you’re not able to make up the 20%, not only will you lose the potential tax-free or tax-deferred growth on that money but you may also owe a 10% penalty if you’re under age 59½ because the IRS would consider the tax withholding an early withdrawal from your account. So, to make a long story short, do pay attention to the details when rolling over your 401.

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Why Transfer Your 401 To An Ira

Why would you move savings from an old 401 plan to an IRA? The main reason is to keep control of your money. In an IRA, you get to decide what happens with the funds. You choose where to invest and how much you pay in fees, and you dont need anybodys permission to take money out of the account.

More Control

Cost and providers: In your 401, your employer controls almost everything. Employers choose vendors for the plan and determine the investment lineup. The menu might include investments you like, and they might be more expensive than you want. Plus, if you want to practice socially-responsible investing, the 401 may lack options.

Timing: 401 plans also require extra steps when you want to withdraw funds: An administrator needs to verify that you are eligible to access your money before youre allowed to take a distribution. Plus, some 401 plans dont allow partial withdrawals. Instead, you might need to take your full balance.

Easy Withdrawals

If you need access to your 401 savings for any reason, its easier when the money is in an IRA. In most cases, you call your IRA provider or request money online. Depending on what you own in your account, the funds might go out as soon as the next business day. But 401 plans might need a few extra days for everybody to sign off on a distribution.

Complicated Situations

Control Tax Withholding

What Is The Right Amount Of Life Insurance

Most insurance companies say a reasonable amount for life insurance is six to ten times the amount of annual salary. If you multiply by ten, if your salary is $50,000 per year, you’d opt for $500,000 in coverage. Some recommend adding an additional $100,000 in coverage per child above the 10x amount.

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Rollover To A Life Insurance Policy

Technically, you cant roll over your 401 account into an insurance policy however, if you have a life insurance needs, you can withdraw funds from the account and redirect them to pay for a life insurance policy. You can avoid early withdrawal penalties under IRS Rule 72t,2 which allows you to take equal payments from your accounts. However, you must agree to take consistent withdrawals from your account each year for life.

Do A Direct Rollover To A 401 Or Ira

This is often the most cost-effective way to perform a 401 rollover. A direct rollover empowers you to choose a retirement account that best suits your needs. If you choose to roll over your proceeds to your new 401 plan, check with your new plan administrator first, as some plans require eligibility terms to be met before you can deposit a rollover into your account.

Oftentimes, physical checks for rollovers are still mailed via USPS, and providing incorrect payee information can cause delays in processing your rollover, leaving your funds uninvested longer than necessary. Heres how to help avoid unnecessary delays in the rollover process.

• Check with your current 401 provider to see if they accept incoming rollovers. If they do accept rollovers, they should provide you with an incoming rollover form that will provide you with information about the process of rolling your funds into the 401 plan.

• Notify your previous 401 provider that youd like to roll over your funds to a new 401. Depending on your provider, this process may not be quick or cheap. For example, there may be a withdrawal fee and a form you need to complete before the plan can start the distribution process.

Each provider is different, but make sure to ask these questions, at the minimum, if the information is not provided on the incoming rollover or outgoing distribution forms:

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