Few Americans stay employed with the first company they joined for the duration of their lives, which often prompts them to transfer their retirement fund to a new account at least once. However, certain penalties may arise if the transfers are not done in a certain way.
Having sufficient savings is imperative to enjoying a comfortable retirement and avoiding money shortfalls, so it’s important that consumers earn the most from their 401(k) investments. For this reason, experts advise workers who are transferring a 401(k) to a traditional IRA account conduct a “direct” rollover, from trustee to trustee, SmartMoney reports.
Direct rollovers allow the account funds to be transferred to the traditional IRA in their entirety. However, individuals who opt to have their 401(k) balance mailed to them first will see 20 percent of the taxable funds withheld in federal taxes, the news source explains. This will force workers to come up with the 20 percent on their own to fund the IRA within a 60-day period.
Individuals who plan on opening a retirement account or transferring one over should consider speaking with a tax preparer
first to find out about any tax implications that may exist and ways to avoid penalties.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.