3 Things Everyone With a 401(k) Needs to Know
by Gregory Litts on Aug 19, 2015
#1 - You Can Roll it Into an IRA
In the event that an employee separates from an employer, for any reason (including a layoff), there are several options the employee can consider in deciding what to do with a 401(k) account balance. Here at RJ Capital, we recommend rolling the balance into an IRA 99% of the time.
A rollover into an IRA will not trigger any taxes or penalties. The major advantages of an IRA include:
• Access to virtually limitless investment options - a typical 401(k) generally offers 10 to 30 investment options,
• A tax situation that is more advantageous for beneficiaries in the event that the account-holder dies and
• Less-extreme partial withdrawal penalties - which might make an IRA rollover a better option than leaving the money in a former employer's 401(k) plan for someone recently laid-off who needs to take a partial distribution.
#2 - 401(k) Loans Can be Dangerous
Loan defaults can be hazardous to your financial health. If you quit working or change employers, the loan must be paid back right away. It's not uncommon for plans to require full repayment of a loan within 60 days of termination of employment. If you can't repay the loan, it is considered defaulted, and you will be taxed on the outstanding balance, including an early withdrawal penalty if you are not at least age 59 1/2.
#3 - Your Company Match Provides a 100% Return
Many employers include a company match as part of a benefits package. Like any other benefit, part of the rationale behind the company match is to entice people to want to work for the employer. People are attracted to employers with good benefits packages. A company match has the power to greatly increase the value of an employer-sponsored 401(k).
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