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How to Rollover Money From Your Company 401K Savings Plan

What is a rollover withdrawal?

A rollover withdrawal is a tax-deferred and penalty-free way of moving your savings from a former employer's retirement plan into an IRA or into another workplace savings plan.

  • With an IRA, you can pick from a wide variety of investment choices including mutual funds, stocks, bonds, ETFs, and more
  • Taxes aren't due unless you withdraw the money
  • You can take penalty-free withdrawals for certain first-time home purchases or education expenses if you’re under 59 1/2
  • You can roll over all contribution types to an IRA
  • Note: You can choose to work with any financial service provider. Your employer does not endorse any specific provider.

A rollover is a way to transfer assets from a former employer's workplace savings plan, such as a 401(k) or 403(b), to your new employer's workplace savings plan or an IRA. To do this, you'll need to request a check from your previous employer, then complete and send any necessary paperwork, or you can contact your companies 401K savings plan representative and it can be completed electronically one of the following ways:

  1. A direct rollover: You request your workplace savings assets go directly to your new workplace savings plan or IRA. Taxes and penalties are not assessed during the transaction because the assets are not payable to you. Instead, your former employer makes the withdrawal check payable to the trustee or custodian of your new employer's plan or IRA.

    You will not incur taxes or penalties, and your assets will remain invested tax-deferred (you will not owe taxes until you withdraw your savings or begin taking minimum required distributions at age 70). In most cases this type of rollover is the easiest way to avoid taxes and penalties. 

  2. A 60-day rollover: You have your workplace savings plan assets paid directly to you, and then roll over the assets into an IRA or your new workplace savings plan. You must complete the rollover within 60 days of receiving the distribution to avoid current income taxes. You'll be subject to mandatory 20% withholding for federal income tax, which you would have to replace with your own funds if you want to roll over your entire distribution.

    If you hold the assets for more than 60 days, your distribution will be subject to current income taxes, as well as a 10% early withdrawal penalty if you are underage 59½. If you plan to roll over this distribution to an IRA, a Direct Rollover may make the most sense. 

You can roll over most distributions except a minimum required distribution, a hardship distribution, a corrective distribution, or loans treated as distributions. Not all rollover types may be accepted into your current employer's plan, and rollovers will be subject to the rules, restrictions, administrative and investment fees, and investment availability of your current employer's plan. 

 

 

 

Kyle About Me Leave a comment June 22, 2019July 30, 2019 2 Minutes

MY ROUTE TO FINANCIAL SUCCESS

 

Getting Started

I recommend getting a college education so that you have a good earning potential with a solid company who pays a competitive salary or wage and offers a competitive benefits package including Medical, Dental, Vision, Profit Sharing, 401K with company matching etc. I had worked as a Summer Intern with Cooper Tire & Rubber Company my Junior year of college and had an opportunity for a position after graduation in 1982. I was offered and accepted a competitive Salary starting out in a Quality position. After 6 months on the job I was eligible for 401K Profit Sharing with company matching up to 6% of the amount I contributed of my salary. I started out contributing the 6% of my salary which is what I could afford, and the company matched up to that amount, so I was getting a 12% contribution in my 401K account even though I contributed only 6%. You can’t get that kind of return at any bank. I slowly increased my contribution 2% each year after my progress review and pay increase until I reached 14% in my 25th year. At 6% company matching and 14% contribution I was socking away 20% each year.

What to invest in?

Cooper Tire offered a 401K with a taxable or tax-deferred account based on your contribution level. Over the years I did contribute to both, but the majority was tax-deferred which defers paying taxes on what you contribute to your 401K now but defers it until you retire where you will probably be in a lower tax bracket. Having a small amount in your 401K taxable account made sense as an emergency fund if needed and it was needed. So, you may want to sock some in a taxable account but not required. Do what makes good Money Sense but contribute to a tax-deferred 401K account for the tax benefits of not counting toward your total income but deferring to later years when you retire.

Cooper Tire 401K offered potential investments in cash with interest, money markets, mutual funds domestic and overseas funds, and Cooper Stock itself which was the most aggressive. Since I was 23 years old and had many years to grow my account, I chose Cooper stock because they were doing very well financially and split the stock. The stock had split in 1983, 1988, 1990, and 1992. I was able to start buying Cooper Stock about $12 per share in 1983 and with continuing increased contribution amounts and company matching over the years and three stock splits in ’88, ’90, and ’92 amassed 16,000 + shares of Cooper Tire stock. I would be aggressive investing in the early years and slowly reduce that risk as you get closer to retirement.

After buying Cooper Tire stock for 25 years Cooper Tire and Apollo Tire struck a deal in 2013 and Cooper stock jumped 40%. I sold all my shares and collected approximately $600,000. The deal later fell through and did not happen, but I pulled the trigger at the right time. I had opened an Individual Retirement Account with Vanguard and had the money transferred to Vanguard which can be done online and executed by the trustee between Cooper Tire and Vanguard. I chose Vanguard because they offer the lowest fees for funds and transactions especially if you are an experienced investor. Otherwise, Fidelity, ETRADE, TDAmeritrade etc., offer more analytical, trading tools, and learning tools for the beginning investor.

What next?

I took my $600,000 nest egg in June 2013 and after setting up my Vanguard account began to research opportunities to invest in. After a couple of months tracking the stock market on CNBC and online research sources, I chose Altria Group Inc. (MO) in the Consumer Defensive sector, Tobacco Industry, and Blackstone Group L.P. (BX) Financial Services sector, Asset Management Industry. Both investments offer growth and dividends which means you get paid every quarter each year. You can either reinvest the dividends and buy more stock which means more shares and more dividend income or withdraw the dividends to your checking account to supplement your retirement or use the dividend cash account for new investment opportunities.

I invested $457,000 of my $600,000 nest egg in Altria (MO) $325,000 and Blackstone Group (BX) $132,000. After 4 years in June 2017 my Vanguard IRA was over $1,000,000+. That’s approximately a 40% return in Altria (MO) and a 50% return in Blackstone Group (BX) in 4 years. The remaining $143,000 of my original $600,000 nest egg is invested in Solar and Cannabis stocks.

Retirement and Income Streams

After my retirement May 2018, I now have income streams from my IRA Altria (MO) and Blackstone Group (BX) dividends, my pension from Cooper Tire & Rubber Company, my 120-acre Loblolly Pine Tree Farm, and not yet old enough to draw Social Security Income. I currently could draw $70,000 per year from dividends and Pension. I do not live on $70,000 a year but much less, so you don’t have to draw all this income, but you do have to be strategic about it due to the IRS rules, income limits, and tax brackets. The truth is it is as hard to grow and retire on a $1,000,000+, as it is to hang on to it without giving back to Uncle Sam. I plan to take profits from my investments in Solar, Cannabis, and Tree Farm and invest in future income streams.

I plan to use this blog to share my path to financial freedom, teach others, continue to learn and share with others how to save, budget, grow assets, invest, develop income streams and have financial freedom.

Kyle About Me Leave a comment June 18, 2019July 14, 2019 4 Minutes

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