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Rollovers: Easier Than Ever
Although the money in a workplace-based retirement program is less “liquid” than the money in other types of savings accounts, it is nonetheless portable. This means you can move the money from one retirement account into another with very little effort when you change jobs. The smartest way to move your money is with a rollover. What is a rollover? It’s the easiest way to maintain the tax-deferred status of your savings while you are still working. You can decide how your money is invested and your earnings continue to grow tax-deferred, just as they did in your previous retirement program. That can be a substantial advantage if the money stays in the account for a number of years. Why a rollover? Rollover News in EGTRRA In general, though, the 2001 tax legislation makes it easier to roll over your assets into another retirement program if you leave your current job. If your program’s rules permit, you can roll over pre-tax assets from a 401(k) program into a 403(b), and vice versa, without restriction—a flexibility that wasn’t permitted previously. It is now also easier to roll an existing individual retirement account into your 401(k) or 403(b). Also, if you have between $1,000 and $5,000 in your retirement account when you leave an employer and you don’t make other arrangements, your employer may be required to roll the money into an individual retirement account in your name. If you have less then $1,000, the employer may be permitted to distribute that money to you directly. If your new program doesn’t allow rollovers, you have two other options that would allow you to maintain the account’s tax-deferred status.
If your balance is less than $5,000 and more than $1,000, your employer may be required to automatically roll it into an IRA account on your behalf. If this occurs, there are no tax consequences because the money is moving from one tax-deferred account to another. If your balance is $1,000 or less, it may be automatically distributed to you in a lump sum and you will owe applicable taxes and penalties. |
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