Don't Roll Over Your 401K If..

The nice thing about a 401(k) is that you can always choose to roll it over into an individual retirement account (IRA) if you change jobs or are just looking for a positive change in terms of investment options and reduced fees. However, it’s important to understand that, while the “rollover” can often be wise, there are some scenarios in which you should never choose it. For best results, don’t choose a rollover if...  

You’re 55-59

If you haven’t yet reached the age of 59.5, and you make the choice to do a rollover, you’ll be faced with an unwanted 10% penalty. The only exception is if, after age 55,  you lose your job or choose to leave it. That “exception” though is pretty protective of your best interests because when a job change comes into play, penalty-free withdrawals are allowed. After a rollover, though, you don’t have this protection...not until you’re 59.5. Since there are no guarantees in life, you’re better off playing it safe and avoiding the rollover and its lessened protection until you’re above the age where it matters.

There’s Company Stock at Stake

If you’ve got a decent amount of company stock in your 401(k) plan, you don’t want to risk losing your tax exemptions with a rollover. You’ll lose out on a potential capital gains tax rate, which can save you a real bundle. Taking that risk just isn’t worth it!

You’re Not Thinking Straight

Changing jobs, especially when it wasn’t your choice to do so, can be an emotional experience. Many people get into this “out with the old, in with the new” mindset when it comes to their old 401(k), and though it can be tempting to think that way, it’s usually not wise. You need to take time to think about whether your old plan or the IRA is the best fit for you, your needs, and your goals, so until you’ve cooled down and talked things over with a financial advisor, don’t make any big decisions that you might regret later.

In fact, erring on the side of caution is often your best bet in all 401(k) and general financial matters. #401KRollover

Related articles

• The Differences Between an IRA and a 401(k) (futureadvisor.com)