When you leave your job, your 401(k) balance can come with you.
You may be tempted to keep some or all of the money instead of rolling it over, but that is rarely a good idea. If you cash out your 401(k) plan balance, you generally pay the income taxes due on the entire amount withdrawn, as well as a 10 percent penalty tax, unless you are at least 59 1/2 years old, or unless you are retiring from your employer at age 55 or older.
If, however, you want to keep the money in place for retirement, a good strategy to consider is rolling the funds over into an Individual Retirement Account, or IRA.
The process is simple
Find an IRA investment (such as a fixed annuity, a bank CD or a mutual fund) appropriate for you. You will need to meet with me, or with your financial professional, to determine the options right for you.
Contact the administrator of your former employer’s plan. Request the necessary forms be sent to you, so you can make the rollover. (I’ll help you fill out these forms.)
The funds will arrive in your IRA for investment as you chose in step 1.
A word of caution
The administrator may require the check be mailed to you. Make sure the check is made payable to the new IRA company, and For Benefit of (FBO) your name (Example: State Farm FBO Donna Kohlhase). If the check is made payable to you, the plan administrator will have to withhold 20 percent of the distributable amount for federal income taxes. There is no tax due now on this rollover. So, don’t pay it.
For more information, call (480) 396-2140. The insurance agency is located at 6836 E. Brown Road, Suite 101.