Avoid Mistakes When You Make a 401k Rollover

A 401k rollover is very common for most people when they change employers. Instead of cashing out 401k which will result in taxes and penalties to be paid, individuals can move their 401k into another fund or another scheme such as an IRA as long as they adhere to the 401k rollover rules. In this way an employee can continue saving for retirement without their earnings being harmed.

To rollover a 401k is easy enough but things can go wrong if rules are not followed. Firstly the same property rule which prevents people making any income non taxable. The money that is moved has to remain at the same amount. You’re not allowed to buy other assets and deposit what is left over. By doing so, the penalties will be applied.

Time limits apply with a 401k rollover. A rollover from one account to another can only happen once in a year, this means you can’t rollover the account you transferred from or the account you transfer to. The time limit imposed is one year on both accounts. But if you have another account such as an IRA it’s still possible to make a rollover as long as the account is different from the other two.

401k rollovers also have a 60 day time limit. This limit is not counted with the one year limit as above. What this means is that when you get your money you must redeposit this into another retirement plan within the limit of 60 days, if you do not it will be classed as an income and be liable to taxes, you will also have to pay the 10% penalty for an early withdrawal if you haven’t reached age Fifty Nine and a half.

If you’re not thinking of cashing out 401k then seek professional help from someone who understands 401k rollover rules. One way of making sure you don’t hit any snags is by making transfers as opposed to the normal rollover, there are lots of situations in which you can use a transfer and this makes everything so much easier.