It’s hard for people to work in one company their entire life. Most of us will experience the change of jobs. When we work in a new company, we’ll have a new retirement account. It’s time for us to decide what to do with the previous 401(K) account. How about doing a rollover to an IRA?
Making a rollover have some advantages: your investment selection is more diverse; investments may be cheaper; IRAs charge no account fees.
The question is, how to roll over a 401(K) to an IRA?
First, you should determine which IRA to choose: a Roth IRA or a traditional IRA. The main difference between a Roth IRA or a traditional IRA is when should you pay tax. For a traditional IRA, your tax is deferred, which means that you pay taxes when you make withdrawals when you retire; on the contrast, a Roth IRA requires you pay taxes now. Think clear before you choose the account.
Second, open an IRA. Once you decide which IRA to open, you can go to banks, credit unions or other financial institutions. An online broker may be a good choice for you if you want to manage your investments yourself.
Third, ask for a direct rollover. If you want to transfer money from a 401(K) to IRAs, a direct rollover is the best for you. By direct rollover, the funds are transferred directly from one provider to another, without you taking any actions. Though this process is reported to IRS, you don’t need to pay taxes on your funds.
The process is quite simple, all you need to do is asking your former employer’s plan administrator to complete some forms and send a check or wire for your funds to the new account. Instructions will be given from your new account provider, just follow the steps and waiting for the funds coming to your new account.