401(k) Rollover Explained
Does your job provide you a 401(k)? The good news is that if you leave your job, you’re typically entitled to do what you wish with those funds. Unfortunately, too many people make the mistake of taking unnecessary losses and penalties by withdrawing the funds. This can set your retirement back years, and tens of thousands of dollars. So, the best option is to opt for a 401(k) rollover.
The 401(k) rollover is ideal because it allows you to transfer your existing retirement account into another retirement account without being subject to unnecessary taxes or withdrawal penalties. Remember, retirement accounts like a 401(k) are funded with pre-tax dollars, and grow tax-deferred. That means if you take a premature distribution, the IRS is going to penalize you with taxes on all of that money, and also apply an additional 10% penalty if you withdraw the money prior to age 59 1/2. This is a pretty raw deal if you don’t need that money for a dire emergency, yet so many people will take the penalty simply because they don’t know how to do a rollover.