It is often difficult what option you should use to get your funds out of your existing 401k account. One of the major stresses of this process is the uncertainty of what exactly you should be doing. Add this stress to already existing stress of managing your retirement account and the whole process can be rather overwhelming.
It is important that you take the time to sufficient research where and how to transfer your funds from your retirement account. The first step in this process is to consult with your financial advisor or plan administrator.
Your financial consultant or tax advisor will be able to tell you whether to transfer your funds into another 401k, IRA account, or other investment vehicle. As a professional they will be updated on the latest tax news and regulations.
The Internal Revenue service had complicated the rules for 401k rollovers, making the transfer rather daunting for the average investor. One of the more burdensome rules they have implemented is called the 60 day rule.
The 60 day transfer rule was designed to limit the amount of time that you have available to transfer the funds from one account to the other. The Revenue Service wants you to take care of the transaction and not leave the funds out in neverland. The primary reason is that they want you to decide how the tax treatment should be for the transfer.
Despite the simplicity of this rule, the tax implications of it are very present. The best way to avoid this penalty is to determine where the funds are going well before ever transferring them in the first place. A good advisor will help you get your ducks in a row before making the transfer. This allows you sufficient time to fill out everything that is required to move the funds.
You shouldn’t make the assumption that the Internal Revenue Service will be forgiving with this rule. In fact, quite the opposite is true. Even cases involving only one or two days has incurred the penalty and been rejected appeals.
There are only a couple of different situations in which the IRS may be somewhat lenient of this 60 day rule. Most of which are rather extreme and not likely to apply to you. In cases such as incarceration, hospitalization, disability, or death, the Revenue Service may consider your appeal. This compassion ruling does come with some stipulations also. There is often a fee associated with the IRS waiving this penalty due to hardship.
Roger Harrison is an experienced financial planning enthusiast that has extensively studied how to do a 401k rollover to ira and the best ways to transfer your money. Visit him online at the The 401k Rollover Guru for more information on these and other related topics.
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