Common 401k Rollover Mistakes

When we open our first 401k there is usually a lot of questions, a lot of unfamiliar jargon that leads to confusion. Eventually it all gets sorted out and we start investing in our retirement fund.  However, when we leave our current employer and need to take action in regards to our 401k, then the questions and confusion begin again. It is for that reason that there are some pretty common mistakes when it comes to a 401k rollover.

One of the most common mistakes is relying on your employer to give you rollover advice.  While some employers are very helpful they may not be licensed and qualified to give you any financial advice so it is wise to be your own advocate and look to a professional who specializes in this area.  One might think that since your company offers you a retirement plan they are familiar with all the processes and procedures about it, but the truth is most are not.

Another common mistake that takes place with a rollover is not meeting the 60 day rule.  The 60 day rule simple means that you have 60 days from the day of receipt to reallocate your funds into a new qualified retirement account. Once you have decided to move your 401k funds, the IRS does not want you to sit on that money for too long.  In fact, any taxable distribution that is paid to the participate (meaning you) that is eligible to rollover is subject to a 20% mandatory withholding.  If you are under the age of 59 ½ and the time of the distribution, any taxable amount that you do not roll over may be subject to an additional 10% tax on early distributions. So as I stated before, it wise for you to understand the rules when it comes to your 401k rollover.