Common Mistakes to Avoid when Initiating a Rollover in Colusa

Employer sponsored investment programs typically fall into the 401(k) category. However, when a person changes jobs and they aren’t eligible for a retirement plan immediately, their employer doesn’t provide a retirement plan, or they are looking for a better investment opportunity, a Rollover in Colusa makes the most sense.

What is a Rollover

A rollover is when funds are taken from one investment plan and are transferred to another, such as an IRA. This is a common practice when somebody either voluntarily or involuntarily changes jobs. However, it is important to handle the rollover properly.

Mistakes that Should be Avoided

The key to rolling over funds from an existing 401(k) plan to something like an IRS is to do so by using a trustee to trustee transfer. What this does is allows the owner of the investment funds to initiate the transfer, but never take possession of the funds. If the owner of the investment takes possession of the funds at any time, even if they intend to take those funds and put them into a new tax-free investment plan, the IRS could establish that the owner of a 401(k), for example, took possession of those funds. This makes them income, and are therefore taxable income.

Penalties and Taxes

In situations where this has happened, the owner of a 401(k) can face penalties for cashing out the investment plan early. This is on top of an overall tax bill on the money that was cashed out of a 401(k) program. Considering how much money is in a particular 401(k) investment plan, this tax bill can be extremely steep.

People initiate a Rollover in Colusa for a number of reasons. Whether it’s finding a place to put investment money that will still remain tax-free or it’s looking for a better investment opportunity, rolling over funds from one retirement account to another can be a rather savvy financial move. It’s also important to do this rollover correctly to preserve the tax-free nature of the funds, and this helps a person continue to stay on track when saving for retirement. To Get more information about the rollover process, you may want to speak with a financial advisor.