A Brief Introduction To 401k Rollover

Named after the Internal Revenue Section 401k which explains the program, 401k is a form of retirement savings account offered in the United States. This program took effect in January 1, 1980, with the first plans officially adopted by Americans in January 1982. EGGTRA or known as the Economic Growth and Tax Relief Reconciliation Act of 2001, which was established in 2001, made some major advancement in 401k plans. One of these developments allowed rollovers between retirement plans.


A 401k rollover refers to a process that allows an individual to transfer his savings from a 401k plan to another qualified retirement account without a tax cost. A qualified retirement account could be one of the following: another new employer’s 401k plan, traditional IRA, or a Roth IRA.


One possible reason why a 401k rollover is done is because a person is leaving his job and he no longer wants to have his 401k managed by his previous employer. But then, if the person is quite happy about how his previous employer handles his 401k, he can choose to leave his funds in that plan. A 401k rollover to another 401k plan is far better than withdrawing your money from the plan because you will be charged a 10 percent penalty by the IRS. If you do a 401k rollover, you can avoid this penalty and your earnings can continue to grow tax-free.


If a person doesn’t want to rollover his 401k to his new employer’s 401k plan, he can elect to rollover it to a traditional IRA. IRA is short for Individual Retirement Account. In traditional IRA, an individual can put money into his account without needing to pay taxes. Traditional IRAs allow people under 70 ½ years old to contribute a maximum of $5000 per year. Withdrawal of funds is similar to 401k plans. Withdrawals are taxed and are subject to a 10 percent penalty when done before the age of 59 ½.


Another option for individuals is to rollover their 401k to a Roth IRA. Roth IRA, by comparison, lets a person put funds in the account that is liable to tax. He allows his savings to grow and pull out his funds totally tax free on retirement. This means investing more money during the course of contribution but saving more money upon retirement age.


401k rollovers help people take full advantage of their retirement savings by having them grow steadily. Truly, investing ones money smartly helps a person achieve a satisfying, financially stable retirement later in life.

If you need well written, totally fresh and unique content for your websites then please check out PLRPro where you can get 250 PLR articles like this one every month.