Hi, Had a question if I can 2 401k accounts. This is the scenario :
Had a 401k account in my previous company. Left that company and joined a new company. The 401 k money is with the previous company. Can I leave it there and open a new 401k account in the present company. I know you can roll it over, but I was wondering if its possible to do the above.
Absolutely. I still have 2 401K accounts from previous employers as well as the one with my current employer that I'm actively contributing to.
As well as leaving the old 401K money where it is, and rolling it over into your new 401K plan, you can also roll your old 401K money over into an IRA. This can make sense if you want to do a Roth conversion on the money, or if neither the old nor new 401K plan offers a good selection of investment choices and you want more control. If you do decide to move the money, be very careful to do what is called a "direct rollover" so that you don't end up being liable for unexpected taxes and early withdrawal penalties.
Each plan will be different. if you don't have much invested in the old 401k, your employer may cash you out... you would then have to pay taxes and penalties on withdraw.
The best answer is to check with your old company. Check the 401k plan rules, in particular.
My wife was forced out of a 401k from a former employer because she had a low balance (1k?). International Paper cashed her out of it, we had to pay the penalties associated with the cash out.
I'm guessing you endorse the 401K check directly into the IRA account. Add in penalty dedcutions until you get them back. That way you can probably justify you never took possession of the funds.
They can "cash you out" in the sense that they can forcibly close the account and send you the money, but that doesn't take away your option to put that money in an IRA (as a rollover from a qualified plan to a traditional IRA) and so avoid all the taxes and penalties on it.
You make the taxes up out-of-pocket when completing the rollover. Since the whole distribution was rolled over, there would be no penalties. And of course, whether or not you make up the difference, you claim the $2,000 withheld when you file your taxes.
Example: $10,000 distribution is made with $2,000 withheld in taxes, so you receive $8,000.
If all you do is deposit the $8,000 into an IRA, you'll owe income tax and penalties on the $2,000.
However, if you take $2,000 from somewhere else (savings, borrow it, whatever) so that deposit $10,000 into the IRA, there will be no income tax or penalties.
In *either* case, when you file your taxes, you'll add that $2,000 to the "tax withheld" line of your 1040 (the same line where the income tax withheld from your paychecks is reported).
There is a financial program on a radio station in the city where I reside. The financial planner who conducts that program constantly warns of the "Tax Time Bomb(s)" left behind in old 401K's. It is too easy to close out old 401k accounts and roll them over into the new account and at the same time update all the things that you or your heirs and beneficiaries might otherwise regret. Things happen to people and to companies. The shorter the tether the easier to keep everything straight and current.
However, bear in mind that there are several potential downsides to doing so. First - at some point you'll want to do *something* with that money in the old 401k - whether it's roll it over to an IRA, start taking distributions, whatever - and when that time comes, you'll have to deal with the old company and their agents. If it's a large, well established company, that'll probably not be a big deal, but if it's not, it can be a pain.
I've had both types of situations and when I wanted to do a rollover from an employer who'd mostly shut down, it was a bit of a trick to track down the right folks for dealing with it.
On top of that, unless the investment options in the old company are fantastic, you can probably do better - and have an easier time of it - in a self-directed IRA. You don't have to roll the old 401k into a new employer's 401k - you can roll it into an IRA at any brokerage company or mutual fund company and in all likelihood have both better investment options (with lower fees) but much better access for managing it via web pages, etc.
But you can generally just leave it with the old employer for as long as you like, so there's probably no rush and no worry. Whether you leave it where it is, roll it into the new employer's 401k or roll it into an IRA, the only thing you really want to avoid if at all possible is liquidating it - ie. taking the money out and into a taxable account and/or spending it. If you do that, you'll pay a 10% penalty, and taxes, and have wasted a huge opportunity to get yourself some tax-deferred growth.
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