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When to Invest in a Rollover

Consider a 401(k) rollover if you’re dealing with 1 or more of these situations:

Changing Jobs

When you change employers, you can usually rollover your 401(k) from your previous employer into your new employer’s plan, or an Individual Retirement Account (IRA). This helps consolidate retirement savings and lets you maximize control over your investments.

Retirement

If you’re retiring, you might roll over your 401(k) into an IRA, or another retirement account, for more flexibility with withdrawals and potentially reduced fees.

More Investment Options

Your 401(k) plan might have limited investment options. For a broader range of investment choices, rolling over your 401(k) can open up your investment strategy.

Avoiding Taxes and Penalties

If you withdraw funds directly from your 401(k) before you turn 59.5, you may be subject to early withdrawal penalties and taxes. A rollover can help you avoid these penalties, especially if you’re not immediately retiring and need to access the funds.

Consolidation and Simplification

If you have multiple 401(k) accounts, consolidate them into a single account to simplify your financial life and make it easier to manage your retirement savings.

Inheritance

If you inherit a 401(k) from a spouse or a non-spouse, you may roll it over to an Inherited IRA to continue tax-advantaged growth. As well as manage distributions according to your needs, timeline, and circumstances.

Before opting for a 401(k) rollover in Houston, you’ll want to consider fees, investment options, and potential tax implications. Additionally, be aware of any time constraints or restrictions imposed by your current and previous employers’ retirement plans. Consult with a financial advisor to assess your situation and determine the best course of action.

Should I Cash Out My 401(k)?

It is unwise to cash out your 401(k) unless you’ve explored all the alternatives with a professional Houston financial advisor. If you make 401(k) withdrawals before the age of 59.5, you’ll be faced with paying early withdrawal penalties of 10+%.

Conversely, if you need liquid funds immediately, your only option may be your 401(k). If that’s the case, our Houston fiduciaries can help you understand how this will impact your retirement savings and long-term financial goals.

401(k) Rollovers in Houston:
FAQs

 

Most 401(k) rollovers take 2-4 weeks from start to finish. However, depending on the complexity of the rollover, the process can sometimes take longer.

Rollover delays are often due to:

  • Plan restrictions
  • Outstanding loans
  • Incomplete or errored paperwork
  • Employer approval
  • Market conditions
  • Processing time
  • Miscommunication between institutions

Employers may freeze your 401(k) due to pending litigations, mergers, or administrative changes. If this happens, they are legally required to provide 30-day notice prior so you can make the necessary arrangements. However, you won’t be able to add or remove funds from your account while this is happening.

Fiduciary advisors like Trajan Wealth can help streamline the process by coordinating efforts and correctly filling out paperwork.

Your vesting schedule can directly impact your 410(k) rollover. If you’re at 0% vested status, you can only move over funds you have added, not any employer contributions. Once fully vested, your entire 401(k) is yours. Our Houston team can help you understand your vesting schedule, so you’re not surprised down the line!

No, your new employer is not required to accept rollover contributions. They may also offer limited plans. If you run into this situation at your new job, our team can help you find a smart and solid alternative to ensure your hard-earned money keeps working for you.

Tax implications often come down to which type of rollover you’re using:

Direct Rollover: Funds from your 401(k) are transferred directly from your employer’s plan to the trustee or custodian of the new retirement account. This helps you avoid taxes and penalties associated with early withdrawals.

Indirect Rollover: You receive a distribution from your 401(k) plan, and then you have 60 days to deposit the funds into another qualified retirement account to avoid taxes and penalties. However, you must be cautious with indirect rollovers: any amount not rolled over within the 60-day window may be subject to income taxes and early withdrawal penalties.

Traditional 401(k) to Traditional IRA: This option preserves the tax-free nature of Roth contributions and earnings. However, you must ensure that the Roth IRA is designated to receive Roth 401(k) rollovers.

Traditional 401(k) to Roth IRA: You’ll pay income taxes on the money you move. Depending on how you time this move, you can take advantage of low tax rates.

With all these options, specific rules and additional considerations can vary. Consult our Houston-based team for guidance tailored to your situation to ensure a smooth rollover process.

Successfully Navigate 401(k) Rollovers in Houston

Our Houston financial advisors guide local residents on the best approach for their individual circumstances, helping you make informed decisions about retirement savings and other financial considerations. Make an appointment to visit one of our Trajan Wealth offices in Sugar Land and The Woodlands – or meet virtually with our team. Every step of the way, we’ll listen to you with the hearts of educators, prioritizing your financial well-being and wealth management goals.

Contact Us Today!