401K And IRA Rollover
As the baby boomer generation progresses to retirement, the importance of 401k Rollovers has increased. There have been reports that 'baby boomers' are not prepared for their retirement but many believe that the truth is much better than has been reported. In Vanguard's Retirement Outlook 2006 Analysis, released in August, showed that about six of 10 people are manging their retirement savings and preparing adequately. Vanguard also found that 20% should change their plan modestly and an additional 20% were at high risk for retirement failure.1 Some of the misconception has arisen from the frequent rollover of 401k plans.
In past generations, retirement plans were easily traceable. The mere existence of a retirement plan implied a long-term commitment to a single employer. The same is not true with 'baby boomers'. Most in this generation have had multiple employers and maintained their retirement fund through more fluid avenues. In answer to the different needs created by this generation, there are now a myriad of options that cater to the needs of those reinvesting there 401k savings. Individual Retirement Accounts (IRA's) have become the main venue of reinvestment. There are many factors to consider during this process the following information addresses 2 basic questions concerning the most popular 401k rollover choice, IRA's.
IRA's can overcome the 20% taxation loss. There can be a tax fee of 20%, stated as a 'withholding fee' that applies if you do not arrange for a 'direct rollover'. An IRA is a great rollover strategy that allows you to avoid the 20% loss. Any check that is distributed from the previous 401k should be made out directly to a trustee of the new account to avoid the fee. Typically, your name should only appear on the check as a reference. Direct rollovers will require that you inform the previous plan manger of your transition within 60 days of your official departure.
IRA's are not beneficial if your retirement is wrapped up in stocks or other ventures. You may be better off withdrawing the shares and holding them in a taxable account instead of rolling them over into your IRA. This is especially true if it is received as a lump sum distribution. The benefits may far outweigh the 20% fund taxation depending on your situation. 1Raising the Retirement Game: Eleven experts offer their takes on the hottest topics in this arena-from branding to boomers to variable annuities. Editorial Staff , On Wall Street, 2007-05-01 |
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