Rolling Over Your 401K

One of our primary services at EquiAlt is handling rollover 401K accounts. The pension funds of your grandparents have given way to a newer type of workplace retirement account which is called a 401K. More formally, this is a defined-contribution pension account named after subsection 401K of the Internal Revenue Service Tax Code which establishes the tax rules on this type of accounts. Many employers offer a 401K retirement account. In most cases, you defer a portion of your current earnings until retirement and in return, your employer matches some portion of your contribution. Each year, a greater percentage of your retirement account becomes vested. This means that even if you separate from your employer, your contribution plus the vested amount of the employer’s contribution is yours to keep. You are allowed to move your account to another investment advisor, which is referred to as a “rollover”. The money then leaves your former employer’s 401K and into a rollover IRA (individual retirement account). While this may seem technical, the main thing to remember is that the money you contributed is always yours and the vested portion of your employer’s contribution is also yours. Most of us get upset when we lose a $20 bill. However, Forbes magazine has estimated that more than 15 million Americans have left behind 401K accounts with former employers, many containing thousands of dollars. Whether I chose to leave my former employer or my former employer chose for me to leave, my money should not be hanging around there any longer either.

As long as you rollover your 401K into a traditional IRA, the principal, capital gains, and interest earned retain their tax deferred status until you make withdrawals during retirement. The best part about rolling over a 401K account is that although the tax rules and sophisticated investment opportunities may sound cumbersome and hard to accomplish, it really is not. We work with these products on a daily basis.  Just bring us the paperwork from your existing 401K and we can get to work on rolling it over into an IRA. We will assign a self-directed account manager who will work directly with you to discuss your goals, comfort with risk, and investment time horizon to establish an investment product that is best suited for your specific needs.

While this blog is frequently real estate related, since we are writing about investments, now is a good time to remind you that some financial experts are indicating that a good ‘rule of thumb’ is that you should try to save at least 8X (times) your ending salary in order to avoid outliving your retirement. So, if you currently earn $70,000 annually, your savings goal should be $560,000. Factors such as longevity, rate of return, income during retirement, and numerous others may have a significant impact on either increasing or decreasing this number. We would be pleased to discuss your individual financial goals and needs with you to see how we can make your dreams a reality.