Daly Investment Management wanted to take some time and address the top 4 questions we get regarding a clients 401k Portfolio. We know every client has different goals and risk tolerance and nothing is one size fits all but below are some insights into your options.
What are the rules for moving 401k to IRA?
Both 401k and IRAs are qualified retirement accounts, so when moving money between the two accounts it’s considered a tax free event. If you have $100,000 in an old 401k and move to a IRA you will not experience any tax consequence, all that money will be moved over to your IRA then you are free to invest your money to match your goals and risk tolerance moving forward.
What to watch out for making a 401k roll over, Direct vs Indirect?
A direct rollover is rolling over your 401k Plan to another qualified plan, this could either be your new employers plan or an IRA rollover account in your name. An indirect rollover is when you take the funds out and have them directly sent to you. The downside with Indirect rollover is you have 60 days window to redeposit those funds in another qualified plan, if you don’t deposit those funds in the 60-day window you have a tax liability on the entire amount of the 401K that you did not move within the 60-day window.
Can I roll my 401k into a Roth IRA?
You can roll an old 401k into a Roth IRA, however there will be tax implications for that. 401ks are pretax investment vehicles meaning you put the money in before tax. A Roth IRA is going to be after tax money, so any dollars you roll from a 401k to a Roth IRA is going to be taxed. If you roll over $10,000 to a Roth IRA it will be taxed as ordinary income. So you will have to pay taxes on that $10,000, keep that in mind before you make the decision to roll a 401k into a Roth IRA.
What do I with my old 401k plan when I leave an employer?
You basically have three options: first, you can potentially leave the 401k at your old employer, based on plan administration rules. Two, You can roll the 40k to your new employer’s plan. Option three, which is the one we recommend at Daly Investments that is recommend most often, roll the old 401k to an IRA RollOver account in your name. There is no tax consequence for doing this, it is a qualified rollover. You open up your investment options to basically invest in any mutual fund, etf, individual stock, CD, or Money Market. This helps you align your investments with your overall risk tolerances and time horizon.
Daly Investment Management is located in Chicago, Illinois is one of the premier Fiduciaries in the Chicagoland area. Whether it’s an initial discussion about how to investment for your financial freedom or how to avoid taxation when moving multi dollar portfolios lets talk (224) 347-2623, we are happy to leverage our decades of experience to help you towards your retirement and financial goals, no question is to small or too big.