A 401(k) rollover is never a bad idea…unless you do it wrong. The process is far from simple, unlike what people would lead you to believe. It takes a lot of prior knowledge (and in most cases, an expert’s guidance) to get through a conversion completely unscathed by fees or penalties. Today, we’ll be going over the most common 401(k) rollover mistakes that could cost you a ton of money in taxes. Thinking about doing a rollover? Consult with your trusted tax planners at Maggi Tax Tampa first!
- Triggering the Cashing-Out Tax Penalty
- Passing Up Your 60-Day Rollover Window
- Rolling Over Your 401(k) Before Getting Your Last Paycheck
- Believing IRA Funds Are Automatically Invested
- Selling Your Stocks to Reinvest In New Stocks
You already know that if you take out your 401(k) funds before you retire, you can say goodbye to a big chunk of your savings in tax penalties. But do you know by how much, exactly? Pulling your savings early could hit you with a tax fee of 10%! Is this charge worth it to cover your bills or pay off your debt? You might think so, but there are better ways to tackle those obstacles without sacrificing your cushy retirement in Tampa.
Read more > Roth Conversions & Legacy Planning: 4 Tips For Winning The Long Game
So you don’t want to be charged early withdrawal fees. That’s a good start. But do you know how easy it is to trigger this fee by accident? Many income earners in Tampa walk right into this fee, not realizing that they only have 60 days to transfer their funds into a new retirement savings account. After missing that 60-day rollover window, the IRS sees it as no different than making an ordinary early withdrawal.
A rollover is something that you should only do once, typically after leaving your first job. What do you think happens when you jump the gun and roll over your money before you get your last paycheck? Any contributions taken out of that final check are put into the 401(k) that you just cleared out. That leaves you with some leftover cash and the possibility of a second rollover soon after your first. Basically, there’s too late, and there’s too soon. If you’re even considering doing a 401(k) rollover, it’s best to meet with an income planner in Tampa to find the right timeframe for you.
Learn more > Should I Do A Roth Conversion Early in Retirement?
If you’ve only ever had a 401(k) retirement account, you’re probably used to your contributions being automatically taken out of your paycheck. That’s not the case with an IRA. When you roll your funds over to an IRA, you need to make your contributions manually. This means picking and choosing your own investments and allocating your own amounts. This is often a lot to take in for those new to rollovers and IRAs, which is why we highly suggest meeting with an investment planner in Tampa to guide you through the basics of investing. We’ll help you come up with a personalized investment strategy that works for you!
There’s a thing called the “same property” rule in Tampa, and it’s often overlooked among those who go through with a 401(k) rollover. Some people get wise and see a rollover as an opportunity to re-invest their money and place themselves in a better position. Like a new start, essentially. It’s not bad to think ambitiously, but selling your old investments to put towards new ones will hit you with fees, as that’s basically a taxable distribution. Be sure to meet with a tax expert before getting hasty.
Maggi Tax Specializes in 401(k) Rollovers. Schedule a Consultation Today to Transfer Without a Hitch!
Call Maggi Tax Tampa today at (727) 799-1701 to ask about our 401(k) rollover management services. We’ll teach you everything you need to know and provide you with tailored strategies to help you achieve a wealthy and stress-free retirement!
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