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Questions and Answers about 401K Rollovers

Have you ever heard of a rollover IRA?

“Rolling over” is just another term for consolidating. This means compiling all of your retirement accounts into one. For instance, a person might change employers and “lose” their old 401(k)—forgetting the password or which company held the account. People aren’t going out of their way to help you find your money, so it’s in your best interest to keep all of your retirement nest egg dollars in one place.

A 2009 study found that nearly half of all United States employees cash out their 401(k)s upon leaving a job. By taking those distributions—in other words, withdrawing money from their accounts instead of rolling it into a new account—they’re taxed on that withdrawal as income and they have to pay federal and sometimes state penalties for the early withdrawal. And guess what else people don’t do? Plan for those taxes and penalties!

To consolidate, there are two options:

  • Roll accounts into an existing 401(k) .
  • Roll accounts into a rollover IRA account.

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