Written by daniel | Posted in Finance and Money |

One of the reasons people will opt to leave a 401k account with their old employer or cash it out is ignorance, but it is not the only reason. One of the problems with a 401k rollover is time. It takes time to ready the account for transfer and get the final amount calculated. So often we want to be done with that old employer — especially if the parting is not amiable — and so we take a cash-out and lose 30% of the money to penalties and taxes. So much better to take the time to research a good IRA plan and do a rollover 401k.

The 401k rules say that you have time to decide on a path for your individual 401k. Company rules may vary. Most of them will not do a rollover if the account has less than a thousand dollars. Think about the administration fees — they will not want to spend the money to compute the matching funds for such a small amount of money. If your 401k is this skimpy, you really only have the choice of cashing it out. The tax hit will come in April, so set aside 25% (or more, if needed) of the money for April 15th.

401k rollovers seem complicated — that’s another problem with them, but for a government created financial instrument, they are actually pretty straightforward. The rules and regulations are strict because Uncle Sam is doing something he doesn’t like to do — forgo taxes! But the normal restrictions on 401k and IRA contributions is waived when you execute a rollover and that is very good news. It is a chance to make sure that you don’t spend a few years playing retirement saving catch up.

So even with the real and perceived problems of a 401k rollover, it is worth your time and effort to make sure that your retirement account is growing instead of stagnating. Talk with your benefits administrator to find out about your options before you leave the job. If your account qualifies for a rollover, you usually have 6 months or a year before you have to do anything, and sometimes you can opt to leave the money where it is. Don’t be hasty and assume that you have to cash out the account.

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