You might think 401(k) rollovers are less common than they actually are. Like dusty boxes in an attic, many people have an employer-sponsored plan from a former job, such as a 401(k), lying around.

It’s not uncommon to sಌpeak with someone who has worked for several different companies over the last 10 years, which is indicative of a fast-paced corporate world.

If you’ve participated in a company-sponsored plan and your employment ends, whether voluntarily or not, you likely have a plan sitting in inves�﷽�tment limbo. If you do, you need to choose what to do with it and a rollover is one option.

Understand Your 401(k) Before You Roll It Over

A 401(k) plan is a tax-advantaged 澳洲幸运5官方开奖结果体彩网:defined-contribution savings account as outlined in section 401(k) of the Internal Revenue Code (IRC). The benefits you receive from a 401(k) are based on the returns generated by your investment portfolio.

The Internal Revenue Service (IRS) limits how much you can contribute to your 401(k) each year. As an employee, your annual contribution can't exceed $22,500 in 2023 and $23,000 in 2024. For 2023, you can put aside an additional $7,500 if you are 50 or older for a total of $30,000. For 2024, if you are 50 or older you can contribute the same $7,500, for a total of $30,500. The IRS adjusts these amounts annually for 澳洲幸运5官方开奖结果体彩网:inflation.

These plans can have a pre-tax or after-tax component. Normally, many investments are available as options for growing your retirement assets, in keeping with your 澳洲幸运5官方开奖结果体彩网:risk tolerance.

Knowing what to do with your plan when you leave your employer depends largely on the circumstances in which you find yourself. You should always consult a tax professional or 澳洲幸运5官方开奖结果体彩网:financial advisor before making any decision. Here are five questions you should ask to let some light into your 401(🔴k) ꦅattic.

1. What Are My Options?

This is the most importan♔t question. Depending on your desir🌌es and circumstances, the answer could be one of the following four—only two of which involve rollovers.

Don't Move Your Money

This is a great option if you're allowed to do so. You may not be able to continue contributing if you keep your 401(k) account with your former employer but you may change how your money is allocated.

This option also may allow you to make penalty-free with🦩drawals based on certain criteria. Check with your plan administratoꦛr, as eve♛ry plan is different.

Roll It Over Into an Existing 401(k)

Choosing this option allows you to continue contributing to your plan. It also gives you control over how your investments and other options are handled. Keep in mind that you are 澳洲ꦇ幸运5官方开奖结果体彩网:subject to the provisions of your n🀅ew plan. 

When you roll the 401(k) account from your previous employer, it terminates your former account.

Cash It Out

This can be a very expensive option. Withdrawals will be subject to any applicable 澳洲幸运5官方开奖结果体彩网:taxes and penalties, including state taxes and a 10% early withdrawal fee if you're under 59½.

Let’s say a 45-year-old Michigan resident is in the 24% bracket ($100,525 to $191,950 in taxable income as of 2024) before they cash out their $10,000 account. They are liable for the 10% penalty and another 4.25% for the Michigan state tax for a total of 38.25%. As such, withdrawing their $10,000 will cost them a total of $3,825.

Keep in mind that cashing out you🐬r account may boost 𓃲your taxable income by putting you into a higher tax bracket.

Roll It Over 🌟Into an Individual Retirement Account (IRA)

澳洲幸运5官方开奖结果体彩网:Rolling your account into an 澳洲幸运5官方开奖结果体彩网:individual retirement account (IRA) could mean a 澳洲幸运5官方开奖结果体彩网:traditional or Roth IRA, depending on how your contributions were made. An investor who chooses this route opens the door to flexible inve⛄stment strategies,&n🌼bsp;in contrast to the one-size-fits-all options in a 401(k).

But there are 澳洲幸运5官方开奖结果体彩网:drawbacks. Keep in mind that you can make contributions to an IRA until tax day (April 15 for most years), while 401(k) contributions must be made by the end of the calendar year.

2. What Are the Fees in My Plan?

Investment plans are not free. This means that you're charged a fee for the administration of your plan. The U.S. Department of Labor regulation 408(b)(2) makes it mandatory for employers to disclose fees, which include:

• Investment 澳洲幸运5官方开奖结果体彩网:expense ratios
• Plan provider fees
• Administration fees
• Other miscellaneous fees to each participant

3. How Will the Fees Change if I Do a Rollover?

Every investment professional is required by the 澳洲幸运5官方开奖结果体彩网:Financial Industry Regulatory A๊uthority (FINRA) to disclose the expense associated with each investment. They must also provide enough detail that the investor clearly understands their financial obligation.

4. Should I Consider a Roth Conversion?

The IRS allows you to convert any amount of your pre-tax retirement assets to after-tax Roth contributions. Only those with an adjusted gross income (AGI) below $100,000 were eligible for conversion up to 2010. Keep in mind that there is no income cap, but there are 澳洲幸运5官方开奖结果体彩网:many rules and tax implications of which you need to be aware.

5. What Are the Advantages of a Rollover?

This should get a conversation going about why you want to do the rollover. Investors should match themselves up with a professional who understands what they want to accomplish. An ad♕visor should discuss the pros and cons regarding rollovers based on the investor’s specific and current situation.

The Bottom Line

Your retirement money is important. Know your options completely. Meet with your accountant if your financial advisor isn’t up on the tax stuff, and, as always, stay away from anything you're unsure of or uncomfortable with doing. The advantages and disadvantages of both rollovers and a Roth conversion are many, so your best course of action is to do your homework, know the rules, and seek out professional advice.