By Canney Savanney
So, it’s a new year and a new you. You are thinking of starting over with a new career path and seeing what other opportunities await for you beyond the four corners of your cubicle. Congratulations on following your ambitions and dreams, but what are you going to do with your savings and investments you currently have with your current employer?
Here are four steps you try to adjust to your 401K without having the unpleasant surprise of incurring any unforeseen taxes being deducted. Here are some great tips from Nerd Wallet.
1. Make a choice between opening a Roth or traditional IRA
If you decide upon this method, you will still owe taxes on your rolled over amount in a Roth IRA. But, if you do not want to accumulate any taxes, then making an investment in a traditional IRA would your wisest choice.
2. Open a rollover IRA
For starters, what does a rollover IRA mean? It is taking an Individual Retirement Account (IRA) and transfers one’s assets from an old employer retirement account to a traditional IRA. The purpose this serves is keep the status of being tax-deferred maintained. Meaning you will not be penalized when you withdraw at the time of making the transfer or without paying current taxes. A rollover IRA is pretty much identical to a traditional IRA. The only difference between the two is you are not contributing money annually to a rollover IRA like you would a traditional IRA. Instead, your money is transferred from a previous retirement plan such as a 401(K) into your rollover IRA. With said, if you want to keep your assets safe for your future, you should seriously consider talking to a professional financial adviser about it.
3. Ask you 401(K) plan for a “direct rollover”
What this means is that the current 401(K) plan you have will cut you a check that will not go directly to you but to your new IRA account. Again, what this means is you will not be taxed or penalized for an early withdrawal.
4. Choose your investments
Once you have decided to have your 401(K) funds entered into an IRA, it will go in as a cash transaction. This means that you will have to make investments with that money. There are plenty of great financial advisors in our Buffalo area than help guide you into making the wisest decisions for yourself. I would highly recommend sitting down and having a consolation with a financial advisor, for example someone from Mass Mutual. They will help guide you into making the best choices for your future.
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