Leaving a job can be difficult and can create an array of tasks you need to deal with. In all of that change, it can be easy to overlook what happens with your Principal 401k. However, failing to roll over your retirement account could cost you in the long run.
Fortunately, the process of rolling over your Principal 401k can be painless and usually won’t mean any additional fees or taxes.
Read more to take a closer look at the steps you should follow to roll over your Principal 401k.
Step 1: Decide Which 401k Rollover Option Is Best for You
Not everyone will want to roll over their 401k, which is why the first step is looking at your options and determining which one is the best choice for you.
There are five basic options for what to do with your Principal 401k:
- Leave it in the old 401k plan
- Move it into a new 401k plan
- Roll it over into an IRA
- Convert it into a Roth IRA
- Cash it out
Each choice has different benefits and downsides.
The easiest option is to leave it where it is, but you won’t be able to make contributions, and you might find it difficult to manage multiple accounts.
Moving your funds to a new 401k will consolidate them, but the new account might come with higher fees or fewer available investment products.
Rolling your Principal 401k over into an IRA will keep you in control of your money, but there are fewer legal protections against creditors, and you can’t borrow against the account.
Rolling your Principal 401k over to a Roth IRA can mean more flexibility in retirement, but you’ll owe taxes on that money when you roll it over.
And cashing out obviously puts money in your pocket in the short term, but you’ll likely owe steep tax penalties.
Step 2: Set Up Your Rollover Account
If you begin a Principal 401k rollover but fail to deposit the funds in question into the new retirement account within 60 days, it will be treated as a withdrawal and you’ll owe taxes, so it’s best to make sure your target account is set up and ready to go ahead of time.
One pro tip is to make sure you take full advantage of the help offered by the new account manager. They want your business and will usually offer up plenty of support — and sometimes even perks — to convince you to put your money with them.
Of course, if you have enjoyed using Principal for your 401k, you should consider simply opening a rollover account with them. Principal offers Principal RolloverPlusSM, which means you can get access to a dedicated team of support professionals to ensure a smooth transition, and they can even provide retirement planning advice.
Step 3: Contact Principal
Once you have your new account ready, contact a representative at Principal or begin the 401k rollover process on their website. They will have a basic process to follow for rolling over your account.
One important thing to remember, though, is to make sure you ask for a “direct rollover,” which means that the funds are remitted directly to the new account rather than to you for a later deposit. An “indirect rollover” will likely involve paying additional taxes.
Step 4: Report the 401k Rollover on Your Taxes
Although you shouldn’t owe anything for a direct rollover to a new 401k or traditional IRA, you do still need to report the transaction to the IRS. You should receive a 1099-R from Principal that you can enter in your taxes or hand over to your accountant.
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