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If you are going to quit your job, then you will usually need to do something about your 401k account. Many people will opt for a rollover to IRA, which allows them to continue saving for retirement but without the need for an employer, which is what 401k plans require. The rollover was introduced as a way for people, whose working situation has changed, yet are still too young to cash out their 401k, to avoid incurring penalties and taxes.

So most people choose to rollover to an IRA in order to avoid those penalties and to continue to contribute and earn money in their tax free, 401k savings account. What is needed is an Investment Retirement Account (IRA) and generally speaking there are two choices. The traditional IRA works along the same principle as the traditional 401k retirement plan, where you are only charged taxes when you make withdrawals. The Roth IRA is where you pay your taxes on any increase of income in that tax year. Which one you choose will depend on how much you earn and how much you expect to be earning once the rollover occurs, and when you plan on withdrawing the money.

Troubleshooting a 401k rollover to IRA should also be done. Some 401k plans will contain a clause that requires you to pay a fee when you transfer funds. Talk to your potential IRA administrator about whether they will pay the fee if you sign on with them. If you want to rollover to a brokerage firm, there may be restrictions in that you can only use cash. This needs to be checked by both the administrator of your 401k and by the potential brokerage firm you are thinking of transferring funds to. And of course call and confirm that the funds from your 401k have actually been transferred to your new IRA. Sometimes mistakes happen so it’s best to confirm.

When all is said and done, a rollover to IRA is one of the best ways of safely moving your 401k savings from one account to another. As long as you don’t use that money for anything except retirement, and as long as all the proper procedures are taken care of appropriately, you shouldn’t have any problems. Be prepared by doing your research and by seeking professional assistance.

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