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401(k) Rollovers

401(k) Rollover Options

It's important to understand your retirement plan options when you leave your employer. If you have retired or changed jobs, you may have questions about whether to roll over your employer's 401(k) retirement plan. You typically have four options for your retirement plan assets:

  • Option #1:– Leave the money in your former employer’s 401(k) plan (Leave It)
  • Option #2:– Move the money to your new employer’s 401(k) plan (Move It)
  • Option #3:– Roll over the money to a Traditional or Roth IRA (Roll It)
  • Option #4:– Cash out the 401(k) account, which is subject to tax consequences (Take It)

Option #1: Leaving money in your former employer’s 401(k) plan (Leave It)

Leaving money in your current 401(k) may be an option, depending on the terms of your plan. Many factors – including the option to add money and your investment choices – depend on the terms of your plan, but typically:

  • Ability to Add Money: Once you leave your employer, you generally won't be able to add money to your plan.
  • Investment Choices: 401(k) plans typically have a more limited number of investment options compared to an IRA but may include investments you can't get through an IRA.
  • Available Services: Some plans may offer educational materials, planning tools, telephone help lines and workshops. Your plan may or may not provide access to a financial advisor.
  • Fees and Expenses: 401(k) fees and expenses often include administrative fees, investment-related expenses, and distribution fees. These fees and expenses may be lower than the fees and expenses of an IRA.
  • Penalty-free Distributions: Generally, you can take money from your plan without tax penalties at age 55, if you leave your employer in the calendar year you turn 55 or older.
  • Required Minimum Distributions: Generally, you must take minimum distributions from your former employer's plan beginning at age 72.

Contact your plan administrator to learn more about the terms of your plan, including your plan's fees.

Option #2: Move the money to your new employer’s 401(k) plan (Move It)

Moving money to your new employer’s 401(k) may be an option, depending on whether your current employer has a 401(k) plan and the terms of the plan. Like your former employer's plan, many factors ultimately depend on the terms of your plan, but typically:

  • Ability to Add Money: You'll generally be able to add money to your new employer's plan, as long as you meet the plan's requirements. This option also allows you to consolidate your retirement accounts, which may make it easier to monitor your investments and simplify account information at tax time.
  • Investment Choices: 401(k) plans typically have a more limited number of investment options compared to an IRA but may include investments you can't get through an IRA.
  • Available Services: Some plans may offer educational materials, planning tools, telephone help lines and workshops. Your plan may or may not provide access to a financial advisor.
  • Fees and Expenses: 401(k) fees and expenses often include administrative fees, investment-related expenses, and distribution fees. These fees and expenses may be lower than the fees and expenses of an IRA.
  • Penalty-free Distributions: Generally, you can take money from your plan without tax penalties at age 55, if you leave your employer in the calendar year you turn 55 or older.
  • Required Minimum Distributions: Generally, you must take minimum distributions from your plan beginning at age 72, unless you are still working at the company.

Contact your plan administrator to learn more about the terms of your plan, including your plan's fees.

Option #3 : Roll over the 401(k) to a Traditional or Roth IRA (Roll It)

Rolling your 401(k) into an IRA is another option. With an IRA:

  • Ability to Add Money: You should be able to add money to your IRA, as long as you meet certain income requirements. This allows you to consolidate your retirement and other accounts, which may make it easier to monitor your investments and simplify account information at tax time.
  • Investment Choices: Traditional and Roth IRAs typically have a broader range of investment options than employer plans, but you may not have access to the same investments that are in your plan.
  • Available Services: Through our face-to-face approach to serving clients, your Edward Jones financial advisor can help you identify and implement strategies to help you reach your financial goals.
  • Fees and Expenses: Edward Jones IRA fees generally include an annual account fee, investment-related expenses, and termination fees. For the current fee schedule, see IRA Schedule of Fees.
  • Penalty-free Distributions: Generally, you can take money from IRA without tax penalties at age 59 ½.
  • Required Minimum Distributions: Generally, you must take minimum distributions from a traditional IRA beginning at age 72.

Option #4: Cashing out your 401(k) (Take It)

While withdrawing your money is an option, in most circumstances, it means those funds will not be there when you need them in retirement. In addition, cashing out your 401(k) generally means you'll have to pay taxes on the withdrawal, and there is typically an additional 10% tax penalty if you are under age 59½, unless you left your employer in the calendar year you turned age 55 or older.

Special Considerations for Employer Stock/Securities
If you have stock/securities of your former employer that have increased in value from your original investment, you may be able to receive special tax treatment on these securities. This is referred to as net unrealized appreciation (NUA). If you roll the employer stock into a traditional or Roth IRA or move it to your new employer’s plan, the ability to use the NUA strategy is lost. NUA rules are complex. If you are considering NUA, we suggest consulting with a tax professional prior to making any decisions on distributions from your existing plan.

How we can help
If you have a 401(k) and are exploring what options make the most sense for you, we invite you to meet with one of our financial advisors to discuss your situation. He or she will take the time to explain the options available to you, answer any questions you may have and together you can determine what's best for you.

Important Information:

Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation. This content should not be depended upon for other than broadly informational purposes. Specific questions should be referred to a qualified tax professional.

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