Leaving Your Job? Remember to Transfer Your Assets!

It's important to do a "trustee to trustee" transfer of 401K assets to an IRA after one quits or loses a job.

Mechanics count when one takes money out of a 401K. Relying on the 60 Day Rollover Rule to get the 401K funds into your IRA could leave you short of funds, as well as an income tax and a penalty tax.

Let's say you take a distribution of $100,000 from your company 401K upon your termination from work. You intend to rollover the money into your IRA within 60 days of receipt of the funds. The problem you encounter is a mandatory 20% has to be withheld by the company plan. So instead of having $100,000 to rollover, you only have $80,000. You will need to find the remaining $20,000 that you wish to rollover, from other funds that you have. Remember you may have just lost your job so excess funds may be in short supply.

A better way to have accomplished the above transaction would have been to have the entire $100,000 directly transferred from the 401K plan to the IRA. You will have not taken possession of the money at any given point in time so there is no requirement that 20% be withheld. A trustee to trustee transfer is usually the best way to go. Problem solved.

Questions? Contact our office at 516-294-5287

***

Disclaimer:

Any information provided on this blog is accurate and true to the best of our knowledge, but omissions, errors, and mistakes are a possibility. The information presented on this blog is for informational purposes only and should not be seen as financial advice. Consult with a financial professional before taking any sort of action on the information present in this blog. We reserve the right to change how we manage and run this blog and we may change the focus or content of this blog at any time.