401k Rollover

If you work for a company that offers a 401k retirement plan, and you participate in it, you may be getting company stocks as part of the deal.

If you are, you could also see those company stocks get special tax treatment. The company stock you have in your 401k plan requires some special consideration should you be moving to a new company, or thinking about rolling over your 401k funds into an IRA.

Companies that offer their stock as part of their employees' 401k retirement funds do so because the employees will receive special tax treatment for these stocks. So, let's say you buy $50,000 worth of company stock as part of your 401k. You then decide to rollover your 401k money into an IRA.

If your $50,000 investment has grown to, say, $100,000, then with an IRA you'll be paying taxes up to the limit of 35%, because the money will be seen as regular income. If you choose to separate these stocks out of your 401k when you roll it over to an IRA, however, you will only pay taxes on the $50,000 as regular income for that year, but the difference of $50,000 (your profit) will not have to be paid until the specific stocks are sold. When that happens they will taxed at a lower capital-gains rate tax of 15%. This could really save you a lot of money in taxes.

To learn more about reallocating employer stocks when doing a rollover, 401ks, IRAs, capital gains taxes and other issues concerning investment and retirement, be sure to consult with a financial adviser. He or she will share their expertise with you and help you craft the best retirement investment strategy possible. After all, when it comes to managing your money and your retirement, getting wise advice will turn out to be invaluable.

If you're afraid to look at your 401K statement this quarter, you're not alone. The recent stock market nose-dive has taken its toll on the retirement savings of millions of Americans, and you probably don't need us to tell you that your portfolio hasn't been performing well. But what you might not know is that for most people, your average 401(k) portfolio is not the most well-rounded portfolio you can get. In fact, there are five common problems with the average American's 401(k) plan that might be leaking money from your retirement fund. Take a look at these and see if any of them sound familiar.

1. The Useless Tax Deduction
   The main selling point of a 401(k) plan is usually the tax shelter it provides by making your "pre-tax" income contribution earn interest. However, many people don't realize that the tax on that income is only deferred until retirement. When you take that money back out of your 401(k), you will be paying tax on that money, as well as the interest it accrues. For workers in entry-level jobs, or those in low tax brackets who don't pay a lot in taxes anyway, it might make more sense to pay the tax now and get a Roth 401(k) or Roth IRA. Unfortunately, less than 21% of 401(k) plans offer the Roth option, according to the Profit Sharing/401(k) Council of America.
2. All Large Caps
   One of the most common complaints about 401(k) plans is that their investment portfolios are weighted heavily in the same types of investments: large-capitalization U.S. stocks. These are exactly the types of stocks that tanked in the last year, dragging down many people's retirement hopes along with the market. A more diversified portfolio, featuring small-cap American and foreign stocks, commodities, or specialized bear market portfolios would be a better bet, but unfortunately its rare to see these choices in most standard plans.
3. All Bonds Are Not Alike
   Your typical 401(k) may have up to 20 stock fund choices but only one bond fund and chances are that bond got hit hard by falling interest rates this year. But have you heard of inflation-protected bonds? Treasury inflation-protected securities, or TIPS funds, grow your money at a rate to beat inflation. Trouble is, most 401(k) plans don't offer them.
4. Using your 401(k) as an ATM
   Some employers allow you to take out low-cost loans against your 401(k) balance, and some even go so far as to make that loan amount available as a debit card. While borrowers may rationalize using the loan as "paying interest to yourself," the fact is you are using the money that could be earning returns as an investment, and sacrificing the compounded interest that is supposed to build your nest egg.
5. Rollover Rights getting Rolled Over
   The Employee Retirement Security Act, or ERISA, is supposed to allow employees near retirement age the ability to roll out of their current 401(k) and into an IRA plan. These are called "in-service rollovers." However, some plans discourage or even forbid these in an attempt to keep assets within the company plan. If you find yourself in this situation, contact your plan's investment committee. And if they are not responsive, you have the right to complain to the U.S. Department of Labor.

Now that you know some of the set backs of 401(k) plans - make sure you get the best advice from a financial advisor so that you can pick the right type of investment for your 401(k) plan if you are allow to choose what kind of investments you can pick from. On that note, find out the best retirement account that will fit your retirement needs.

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