cbsnews.com
Managing Old 401(k) Plans: Rollover Options and Tax Implications
To manage old 401(k)s, check the balance; balances over \$7,000 allow for rollover to an IRA or new 401(k), or keeping it; below \$7,000, options may be limited; direct rollover avoids tax withholding.
- What are the advantages and disadvantages of rolling over a 401(k) to an IRA versus keeping it in the existing plan?
- Rolling over 401(k) assets into a no-fee IRA with diverse investment options is often recommended for balances over \$7,000. However, 401(k)s may offer creditor protections or specific investment choices not available in IRAs. Careful consideration of these factors is crucial.
- What are the potential tax implications and penalties of various rollover strategies, and how can these be minimized?
- For IRA rollovers, select a brokerage firm providing various high-quality investment options without extra fees. Target-date funds are a low-maintenance option. Direct rollovers to avoid tax withholding are essential; otherwise, a 20% tax is withheld, requiring a 60-day deposit to a new IRA or 401(k) to avoid penalties.
- What are the immediate steps for managing an old 401(k) plan, and what are the key decision points based on account balance?
- To manage old 401(k)s, first check the balance. Balances over \$7,000 offer choices: leaving the money, rolling it into an IRA, or a new employer's 401(k). Below \$7,000, options might be limited.
Cognitive Concepts
Framing Bias
The article frames the process of dealing with an old 401k as a straightforward, easily manageable task, potentially downplaying the complexity for those unfamiliar with financial planning. The use of analogies like "old clothes in the closet" simplifies a potentially stressful situation.
Language Bias
The language is generally neutral and informative, using clear and concise explanations. However, terms like "elegant" and "low-maintenance" when describing investment options could be considered subtly persuasive.
Bias by Omission
The article focuses primarily on the practical steps of rolling over a 401k, neglecting discussion of potential downsides or alternative strategies. It doesn't address situations where fees might outweigh the benefits of a rollover, or the potential tax implications in more complex scenarios. The emotional aspect of dealing with old 401ks is acknowledged but not deeply explored.
False Dichotomy
The article presents a somewhat false dichotomy between leaving the money in the old 401k and rolling it over to an IRA, without fully exploring other options or the nuances of each choice. For instance, it doesn't mention keeping the money in the old 401k while adjusting the investments.
Sustainable Development Goals
The article promotes better financial planning for retirement, which can help reduce economic inequality by ensuring individuals have sufficient resources in their later years. Access to financial information and guidance, as provided in the article, can empower individuals to make informed decisions about their retirement savings, potentially lessening the wealth gap and promoting more equitable outcomes.