401k Rollover Explained to Beginners
After leaving a company where you have maintained a 401(k) plan, you have the option cash it out, keep it, or transfer it into an individual retirement account (IRA). This third option is called the 401k rollover. You can use an IRA to invest with a company.Transferring your account into a 401(k) rollover exempts you from tax, as it is a pre-tax account.
If you cash your 401(k) instead of rolling it over, you will be paying huge taxes and it could possibly move you up into the next tax bracket. On the other hand, a 401(k) rollover simply creates a new account that you can invest on so you can look forward to a bigger return in the future. Just be sure to channel your 401(k) rollover to a reliable and stable company. Do not be too enticed by companies that offer huge returns for your 401(k) rollover as there is a good chance that you are running into a high risk investment.
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