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Did you recently leave your job? If so, you'll need to decide if you're going to keep your retirement account or move the funds somewhere else. Most companies allow people to keep their savings in a retirement account even when they don't work there anymore.
However, moving to a new account gives you more control over how this money is used.
If you don't know what to do with your current retirement account, you have several options at your disposal, the primary of which is to perform a rollover. You can then put your money into an individual retirement account, which offers more investment choices than the majority of 401(k) plans.
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What are 401(k) Rollovers?
Before weighing your options, you should know what a 401(k) rollover is and when to use it. A 401(k) rollover occurs when you remove money from a 401(k) account and move it into a tax-advantaged retirement account, of which there are several to choose from.
Most people decide to roll their 401(k) into a standard individual retirement account (IRA). However, you also have the option of moving the funds to another 401(k) or a gold IRA.
For a 401(k) rollover to work, the money you withdraw from your old account needs to be moved to a new one within 60 days after you receive it. To avoid tax issues, it's possible to use a direct rollover, which means the money will be sent directly to the new account.
Reasons to Perform a Rollover Into an IRA
There are many reasons to consider converting your 401(k) into an IRA, the primary of which are the better investment options and lower fees. Before you make this decision, you should understand why you're choosing to do so.
IRAs provide several additional benefits that 401(k) accounts don't offer. Once you leave an old job, you're no longer able to make contributions to your account. Even if you were able to make contributions, your employer would no longer match them.
A notable benefit of an IRA rollover is that you won't need to pay any taxes or penalties for withdrawing your money. This is only possible when using a direct rollover to move your funds into a more traditional IRA. All taxes are deferred until money is eventually withdrawn from the account.
You can also take advantage of a broader investment selection, which includes options like mutual funds, index funds, exchange-traded funds, stocks, and bonds. If you find the right IRA provider, you may be able to perform a rollover without needing to pay fees to maintain or open an account. The majority of 401(k) plans charge administrative fees.
You might also gain access to low-cost solutions for investment management. Keep in mind that you have the option of opening your IRA with a robo advisor, which is an investment management provider that's computer-run. The costs of hiring a robo advisor are typically lower than 0.50% of the account's holdings.
Main Options to Consider
There are three primary options you have if you want to move the funds in your current 401(k) to a new retirement account.
A gold IRA is a special individual retirement account that allows you to hold gold and other precious metals as retirement investments. A popular way to fund these accounts is via a 401k to gold IRA rollover. The IRS has implemented comprehensive guidelines on how gold IRAs must be set up and who can use one. The gold bars and coins you place into an IRA account must meet certain regulations, which are based on:
Such strict parameters are in place to ensure that the gold you put into your IRA is considered an investment-grade asset instead of a collectible. Preferred tax treatments aren't available with collectible assets.
Before you create a gold IRA, keep in mind that there are several types of accounts you can open. A standard gold IRA is a more common option. You'll fund this account with pre-tax dollars.
Once you retire and start withdrawing money from your account, you'll need to pay taxes.
Roth gold IRA accounts are funded directly with after-tax dollars. Even though the amount of money you put into this account will be lower than it would be with a standard gold IRA, you'll benefit from not having to pay taxes on the withdrawals you make during retirement.
SEP gold IRAs are available to small business owners and self-employed individuals. This account uses pre-tax dollars. However, the contribution limits are much different. In 2023, you can place up to $66,000 into a SEP gold IRA. When it comes to other IRA accounts, the limit varies from $6,500-$7,500 depending on your age.
When you want to create a gold IRA, you'll need to get in touch with a gold IRA provider to make an account and buy the precious metals you wish to invest in. You can roll your 401(k) into a gold IRA with ease.
If you need to perform a 401(k) rollover because you left a previous job and are getting a new one, you could move assets from the old 401(k) into your new employer's plan. This type of rollover can be done without incurring any tax-related penalties.
If the money is moved from one account to another, there shouldn't be an issue. To perform this type of 401(k) rollover, get in touch with a plan administrator from your previous job and inquire about a direct rollover.
If you want to move your 401 (k) assets into a traditional IRA, there are a few options you can choose from, the most common of which is to transfer your 401(k) funds into a traditional IRA via a rollover. Your taxes will be deferred until you retire.
You can also choose to perform a rollover with a Roth IRA. However, there are tax issues that you must navigate if you select this option. The money that was placed in your 401(k) is made up of pre-tax dollars.
On the other hand, a Roth IRA is considered an after-tax account, which means that you must pay taxes on the amount of money you move to your new account. These taxes need to be paid during the year in which the rollover takes place.
Your third option is to transfer funds from a Roth 401(k) over to a Roth IRA. If you use this method, you won't pay taxes during the rollover. Both of these accounts are funded with your after-tax assets.
How to Perform a 401(k) Rollover
Regardless of the option you choose, the 401(k) rollover process is relatively straightforward. To begin, you'll need to select a new retirement account to move the funds to.
Choose the Option That Fits Your Situation
The initial step in this process is to determine if you want to use a 401(k) rollover and what account you'd like to move your money to. If you have a Fidelity 401(k), you can leave your money with them or perform one of the three rollover options mentioned above.
It's also possible to cash it out completely. However, there are usually tax consequences for withdrawing these funds before you retire.
Likely the easiest option is to leave the account in the same place. However, it can be time-consuming to keep track of the money you have in numerous retirement accounts, which is why it's recommended that you reduce the number of retirement accounts you have open. Since you can't put any additional money into the account, there's no real reason to keep it open.
Moving your current 401(k) to a new one allows you to consolidate accounts. However, the new company that you partner with could charge higher costs or provide you with fewer investment options. If your new employer has yet to offer 401(k) accounts to employees, you can't use this type of rollover.
You could decide to roll the 401(k) into an IRA, which means that your employer wouldn't need to have a 401(k) plan in place. Even though this type of rollover is advantageous, it doesn't provide you with the same level of protection that a 401(k) does.
If you choose to move your funds to a gold IRA, you're able to open your retirement account to alternative investments that have the potential to provide a greater ROI than you anticipate.
Create the Necessary Account
As touched upon previously, you'll have around 60 days to move your money from a 401(k) and into another retirement account without facing any tax consequences. If you end up missing the deadline, the money will be taxable immediately. To avoid this issue, make sure that you have an account in place before you close your current 401(k).
It's also highly recommended that you use the resources available through your account manager. Regardless of the company you use, your account manager should provide you with the assistance you need to maintain your retirement account and handle the rollover process.
The most common method of funding a gold IRA account is with assets that are currently held in your 401(k). You'll need to choose a gold IRA company that offers the precious metals you want to purchase. This company will also begin the rollover process by calling your plan administrator and initiating the moving of funds into your gold IRA.
While you have the option of performing the rollover yourself, you may encounter issues depending on your age. When you're younger than 59.5 years old, the 60-day limit mentioned earlier will apply. If you don't meet this timeline, you'll need to pay an early withdrawal penalty of 10%.
If you'd like to avoid these issues altogether, consider allowing your gold IRA company to conduct the transfer themselves. By letting the company take care of your transfer, you won't have direct access to these funds while they're being moved, which gets rid of the possibility that you'll need to pay an early withdrawal penalty if the funds don't get to your new account on time.
Before starting this transfer, make sure that you identify the amount of money you'd like to move from an existing 401(k) to a gold IRA. In general, your should place a limit on the percentage of your portfolio that's allocated to gold and other precious metals. This limit is typically 5-10%.
Even though 401(k) accounts and traditional IRAs make it easy to create a diverse portfolio that keeps risk low, precious metals IRAs are centered around just one asset class. When these metals are in your account, they can grow in value on a tax-free basis. However, you won't receive dividends.
Call Fidelity to Inquire About a Direct Rollover
If you want to begin the 401(k) rollover process, contact your Fidelity representative to start. They have guidelines in place on how to handle rollovers. Make sure you specify that you'd like to perform a "direct rollover". This option allows you to avoid taxes since the money will be transferred from one account to another.
State the Rollover on Your Tax Return
When you complete a direct rollover, you shouldn't need to pay any extra taxes. However, the transaction still needs to be reported on your tax form.
If you transfer funds to a gold IRA, your 401(k) plan provider should send you a 1099-R tax form, which is where you report the direct rollover. You should also be sent a 5498 form by Fidelity.
You should have all the information you need to perform a 401(k) rollover without experiencing any issues or delays. If you'd like to move your funds to a gold IRA, there is a wide range of bars and coins you can invest in as you plan for retirement.
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