He is resigning from his present Fortune 500 company of 10 years to work for a LLC. It seems that it would be best if he could leave his 401k there and make contributions. What are the other options?
2007-02-23 06:55:02 · 15 answers · asked by newyorktilson 3 in Business & Finance ➔ Personal Finance
No; nor would he want to. The only reason to have funds in a 401(k) is if you are contributing to it. Don't leave it with an old employer's plan, and don't roll it into your new 401(k). Roll it into a self-directed IRA. The funds will continue to grow tax deferred, and you will have greater flexibility and control of the investments.
2007-02-23 12:47:03 · answer #1 · answered by Rob D 5 · 1⤊ 1⤋
Here are his options:
If his new employer has a 401k he can contribute to that. If not he can start up an IRA (roth or traditional) and contribute to that. Limit is 4k depending upon his income level.
If his balance at old employer (fortune 500) is larger than 5k then he can leave it there indefinately. If it's >1000 but less than 5000 then they can force him out but it has to go into an IRA. If it's <1000 then they can force him out with a cash out if they wanted to. But if they are going to force him out they have to provide adequate notice and he'll have time to roll it into to an IRA. given his service time (10 years) I'm guessing it's >5000 and he can leave it there.
If he chooses to roll it over he can roll it into the new company (LLC's) 401k or he can roll it into an IRA. There are advantages and disadvantages for each. Personally? I'd leave it in the old company for as long as possible. I'm guessing the costs are low, the investments are decent. Then when he reaches the age of 55 or so he should roll it into the 401k of whichever job he's at. Main reason is to be able to take a distribution free of 10% penalty if he quits between age 55 and 59 1/2. If he chooses to retire early then he can take a small initial distribution free of the penalty, roll over the majority and then start taking 72(t) installment distributions from the IRA.
Leave old money there...make new contributions to an IRA or to his new employers 401k.
2007-02-23 15:18:15 · answer #2 · answered by digdowndeepnseattle 6 · 1⤊ 0⤋
He will not be able to contribute new funds to the old plan. He can however leave the existing 401K at the old job indefinately (I think). If his new LLC does not offer a plan he should open an IRA on his own and contribute that way. The next decision is whether to open a ROTH IRA or as non ROTH. A ROTH operates differently then a traditional IRA.
2007-02-23 15:01:10 · answer #3 · answered by Devdude 5 · 1⤊ 0⤋
I agree with the other answers on here that state he should roll it over. The main thing he should do, if the company issues a check to him, is get it deposited in a new IRA within 60 days (I believe that's the correct time frame) and be sure that it is entered as a rollover into the new account.
My dad had this problem when he retired from a large company. He did everything he was supposed to do, but the bank employee who handled it for him didn't enter it correctly and it was posted as a total distribution instead of a rollover. Took him a couple months to get it straightened out, and he hadn't known about it until he went to get his taxes done the following year.
2007-02-23 17:04:27 · answer #4 · answered by Peggy K 5 · 2⤊ 0⤋
Nope. He needs to go to a mutual fund broker & do a "direct transfer rollover" to an IRA. Do NOT let the current employer disburse the funds to him personally. That will screw up the whole thing - taxes, penalties, etc. The mutual fund broker can estab. an IRA acct to receive the transfer. Then your boyfriend will have thousands of options of what mutual funds to invest in. (Most companies only give you a few choices.) You can't continue to contribute to the IRA, but you can get the broker to help you set up your own Roth IRA or other investment program. Also, he should probably participate in the new employer's retirement plan, too.
Congrats to him on the new job!
2007-02-23 15:01:51 · answer #5 · answered by Ryah B 2 · 1⤊ 0⤋
Some companies will allow him to leave the 401k in place, while others will give him some 60 - 90 days to roll it over into a new account (either and IRA or different 401k) before they just send him a check (less penalties and taxes) for the whole amount.
He really needs to check with his PRESENT employer to find out what their policies are.
He also needs to check with his NEW employer about what options are available. Part of the "magic" of the 401k contrubition is that it is "pre-tax" dollars, coming straight out of his paycheck. If they can't do that for him to the current account, it complicates his tax situation and requires additional forms come April.
Best bet is to Roll Over his 401K into his own IRA or his new employer's retirement program.
2007-02-23 15:01:47 · answer #6 · answered by jbtascam 5 · 1⤊ 1⤋
He will not be able to continue to contribute to his old company's 401(k) program. You essentially have three options: 1) leave it at the current company until they tell you to move your funds, 2) rollover to the new company's 401(k) plan and 3) rollover to IRA or ROTH IRA.
2007-02-23 15:42:27 · answer #7 · answered by Cptn_Bly 1 · 0⤊ 0⤋
You cannot have a 401 K at a company you do not work at, he will have to roll it over into an IRA. Search for this on the web and contact the appropriate companies.
2007-02-23 16:20:41 · answer #8 · answered by Steve 3 · 1⤊ 0⤋
Some companies will allow you to leave the 401k money there, but no company will allow someone to make new contributions.
2007-02-23 21:44:15 · answer #9 · answered by Quixotic 3 · 1⤊ 0⤋
to my knowledge, once you leave a company you can no longer contribute to their 401K plan......your options for the money you have invested it to roll it over to the new company's 401k plan administrator, cash it out, and roll it into an IRA.
2007-02-23 17:53:10 · answer #10 · answered by Laughing 4 · 0⤊ 0⤋