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401k Rollover Options

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Working for a company that offers a 401k plan might give you the ability to roll over your account into another plan. Typically, this option is only available if you leave your job or retire, but some plans allow you to roll over your 401k even while you’re still working.

The actual process of rolling over a 401k is straightforward — simply make a request to your administrator and transfer the money. But there could be tax and investment consequences of your decision, so it’s one not to be made lightly.

Here are five options you have for rolling over your 401k.

1. Leave Your Money Where It Is

Some — but not all — employers allow you to keep your money in their 401k plan even if you terminate employment with them. In some cases, leaving your money where it is might be one of the best 401k rollover options.

Advantages

Disadvantages

Don’t Miss: Big 401k Questions to Ask Your Employer

2. Roll Over to the New Employer’s 401k Plan

When you change jobs and your new employer has a 401k plan, 401k rollover rules typically allow you to move the assets from your former employer’s plan to your new employer’s plan.

Advantages

Disadvantages

Learn: How to Maximize 401k Contributions— 9 Smart Strategies

3. Roll Over to a Traditional IRA

You can roll over your 401k money to an existing individual retirement account or to a brand new one.

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Disadvantages

4. Roll Over to a Roth IRA

A Roth IRA can accept 401k rollover money just like a traditional IRA can. The main difference between a Roth IRA and a traditional IRA is that Roth contributions are made after taxes are taken out, and qualified distributions are tax-free. This results in the biggest drawback for rolling a 401k into a Roth IRA, as the entire 401k rollover balance becomes taxable.

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Disadvantages

Find Out: How to Convert Your 401k to a Roth IRA

5. Withdraw Cash From Your 401k

Although not technically a “rollover” in the strictest sense of the word, one option for what to do with your 401k assets is to take a cash distribution. You can withdraw your money as early as age 55 if you’ve separated from service. But as with other retirement accounts, like IRAs, you’ll have to wait until you turn 59.5 if you’re still working.

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Weighing Your Options

The 401k rollover strategy you choose could have serious ramifications. If you’re not careful, you could end up with a huge tax bill or get stuck with an account that has high expenses and/or low returns. Examine all your options thoroughly before you make your decision. You might also want to consult with a financial or tax advisor before you proceed.

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