A 401k is a retirement savings plan that allows a worker to save up for his retirement by allocating a portion of his salary to his retirement fund. A 401k is employer-sponsored and the employer has the option to offer a profit-sharing contribution, match what the employee is contributing to the retirement fund or give the employee the option to buy company stock. The fund is held in trust for the employee. As long as the employee does not touch his retirement fund, the taxes from the earnings from fund investment are tax-deferred.
There are ways to move money in a 401k. Here they are:
- You can move the money via direct transfer to another 401k or an IRA. You do not need to touch the money. This process is known as trustee-to-trustee or direct rollover transfer. If you have resigned from your company then you have to fill up an election form with your old employer and another form with the new company who will be accepting your rollover. The transfer process usually takes about two to three weeks.
- There are other 401k plan providers who will offer to set you an IRA for you with their company. Then will help you with the rollover paperwork from 401k to IRA so your money stays invested with them. If their investment options are sound and comparable with other plan providers, then staying with them will be fine. Look for a plan provider that offers the highest earning for your retirement fund investment.
- For a smoother rollover, ensure that you have a new 401k account open with your new employer before to authorize the rollover. Make sure that the election form is filled out correctly and check if the new 401k plan will accept a rollover. Get all the pertinent information about the new 401k trustee who will receive your money.
- If the money from your previous 401k plan is sent directly to you, you have 60 days to transfer the money to your new plan, whether it is a 401k or an IRA. Failure to do so will mean that you have withdrawn your money permanently and the IRS will collect early withdrawal penalty and taxes, particularly if you have not yet reached the age of 59 ½.
- Check indexes and look to see where you can move your money. A good option is to invest in money market funds. It may not yield high interests but your earning will be steady.
- Check out other indicators where you can move your retirement funds. Retirement funds can be used for long-term investments. Look for effective indicators using the Simple and Exponential Moving Averages, Stochastic and the MACD (Moving Average Convergence/Divergence). If these three indicators have almost the same levels, then you can move your funds.
- Make it a point to check the website of your 401k plan provider for news and features so that you can authorize them to move your money from fund to fund and investment opportunities.
With a 401k fund rollover, your retirement money will grow without worrying about taxes. But you have more investment choices when you move your money to an IRA. Do not withdraw your 401k early for you are likely to pay 10% penalty and another 10% in taxes.