401k Rollover

When most of us talk about a retirement plan rollover, we are thinking about taking money from one retirement plan and transferring it into another plan.  In the real world, the most common rollover scenario would be if you accepted a new job and wished to rollover your 401k plan to your new company or another financial institution.

401k Plan Rules

Most likely your new or former employer's 401k plan administrator can help facilitate this transfer.  But you really need to be careful, or some pretty harsh tax penalties can kick in that might have you scrambling.  This can happen because the IRS takes a pretty cautious approach to any kind of retirement plan rollover.  In fact, they really consider a 401k rollover just like a Lump Sum Distribution until you prove them wrong.

401k Rollover Defined

From the IRS's perspective, a 401k rollover occurs when you withdraw cash or other assets such as stocks, bonds, and mutual fund shares from one qualified employer's 401k plan and contribute all or part of it into another 401k plan, a qualified retirement plan, or a traditional IRA within 60 days.  This is sometimes known as the 60-day rollover rule.  Generally, if you have not reached the magic age of 59 1/2, then contributions you made to your 401k plan on a before-tax basis are eligible for rollover.

This is a pretty important process to follow because the tax penalties are quite unattractive.  In the next several sections we will explain a simple process that you should follow and the "be careful" process that you could be involved in with a 401k rollover.

Direct 401k Rollovers

In a direct 401k rollover scenario, your previous qualifying 401k plan administrator will usually require you to fill out several forms describing the amounts withdrawn, and the account information for the new 401k plan, qualifying plan, or the IRA into which the retirement funds will be deposited.

Direct 401k rollovers are the most convenient way to move money from your existing 401k plan into another retirement account.  With a direct 401k rollover, the money is transferred from one financial institution to another and you should never have to worry about withholding rules or tax penalties.  Unless you need to take possession of the 401k funds in your account for some reason, a direct 401k rollover is really the safest and easiest way to make a transfer.

401k Rollover Payments to Individuals

If you have not reached age 59 1/2 and you chose to have the money in your 401k plan paid directly to you, then it is important that you be aware of immediate tax penalties that kick-in and withhold requirements you'll encounter.  With a 401k rollover that is paid to an individual, there is a mandatory 20% withholding even if you intend to deposit, or roll over, the money into a new retirement plan later on.

When you're doing this kind of 401k rollover, you will have to add funds from other sources to offset the 20% withheld.  If you do not add these funds, then you may be subject to an early withdrawal tax penalty.  Let's look at a quick example to see how this works:

401k Rollover Tax Example

Let's say you've saved $200,000 in your 401k plan and you have the rollover payment sent directly to yourself.  That means you will get a check for $160,000 from that institution - not the full amount of $200,000.  Under the 401k rollover rules, you now have 60 days to deposit the full amount - $200,000 - into another 401k plan, qualifying plan, or IRA to avoid tax penalties.

In this example you need to come up with the $40,000 withheld and deposit this money into your new retirement plan in order to match 100% of the amount withdrawn.  If you have considerable funds in an existing 401k plan, multiply that number by 20%.  This is how much money you need to supplement to avoid tax penalties if you take possession of the rollover money.

401k Taxable Distributions

If you under age 59 1/2 at the time of what is now deemed a 401k distribution, and you are not able to follow this process, the tax penalties will immediately start to take hold.  There are two "penalties" that occur if your rollover becomes a distribution:

• You will have to treat any funds not deposited / rolled over as income for that tax year.
• You will be assessed a 10% early withdrawal penalty on the 401k funds not deposited.

401k Plans and Retirement

It's both fun and exciting to watch the money in your 401k account grow through the years.  It's even more exciting to be offered a new job, a chance to work with new people, and stretch your abilities as a professional at a new company.

But the IRS allows us to deposit money into 401k plans so we can save for those retirement years.  If you withdraw the money before reaching retirement age, as you would with a 401k rollover, they want to make sure that money goes right back into another qualifying retirement plan.

Take the time to understand all the 401k rules and talk to your plan administrators if you have any questions.  You're doing the 401k rollover for the sake of convenience - so you can manage all your retirement funds in one place - don't let it turn into a tax penalty nightmare.

About the Author - 401k Rollover

Bill Sharlow is the Editor of Money-Zine . com

For more info on how to do a 401k rollover or ira rollovers visit 401kRollovers.info

I saw an interesting article about public divorce records.  It's a blog about how to get public records and what type of records you should get before getting married. 

For for info, go to www.publicdivorcerecords.org/important-l...

B

Tom McCarthy Newsletter: Issue 24


Lessons From a Life Well Lived

Normally the last half of December is a time when I am able to relax and recharge for the coming year. This past December was different, very different for me. I lost a client and a dear friend when Len Aoyama passed away from a rare lung disease. Len was the owner of a successful insurance agency and about 6 years ago he hired me as his coach and as a consultant for his company. While I was technically Len's coach, I learned so much from watching the way he lived his life. This newsletter is dedicated to sharing some of those lessons I learned from watching Len.

Lesson #1- Always Keep Learning
I've coached quite a few CEO's over the years, but I have only run across one or two who were as hungry to learn and grow as Len. He was always asking questions and reading. Whenever I mentioned a book for him to read, he would have his assistant Maricel order it that same day. Len read several business and personal development books a month and if he really liked a book he would order several copies and give them to people who he thought could benefit from the book.  I was the recipient of several books from Len and he was always sending or emailing me articles that he thought I would find interesting.

Lesson #2- Ask for Constructive Feedback
Every time I would come up to participate in a meeting that Len was leading with his team, the same thing would happen. As I would be driving back to my office my cell phone would ring and it would be Len. He'd start by thanking me for being at the meeting and letting me know how much he appreciated me and then he would always ask, "How did I do running the meeting?" I'd let him know the things he did well, but that wasn't good enough for Len. He would thank me for the compliments, but he really wanted to know "How can I get better?" He was famous for asking this question and he truly wanted to know the answer. He was relentless in improving himself and he knew he needed other people's feedback to be able to do it.

Lesson #3- Plant Positive Beliefs in Others
Len could be tough on people at times, but he had an amazing gift of being able to build people up through his communication. He was a master of praising people in public. Many times when I was in his office he would walk me over to the desk of one of his team members and he would tell me right in front of them what a superstar they were. It was amazing to see that team member light up from hearing Len's public praise. Len was also famous for taking people who had gone through difficult times and helping them to build successful careers in his company. Through the positive beliefs he planted and nourished in his team members he literally helped dozens of people live their life at a whole new level.

Lesson #4- Be a Giver
Generosity was Len's middle name. Len knew that my son Tommy was a basketball fan and arranged on several occasions for Tommy and I to go to Los Angeles Laker basketball games. Len was always giving; to his employees, his friends, his wife, his family and even to strangers. On the day after Len died, I had been in his office, which is on the 9th floor in a large office building. As I was leaving the parking lot and heading home the parking lot attendant he asked me if I had heard the bad news. I didn't even know that he knew Len because Len always left the parking lot through a separate exit, but he told me that he was sad because the "great man on the 9th floor had died." I asked him how he knew Len and he said Len would stop and talk to him when he was walking to his car and that recently Len had given him tickets for him and his son to go see a Los Angeles Angels baseball game. He said he had been meaning to thank Len for the great time he and his son had, but he hadn't go
 tten a chance. Len's final gift was the donation to the UCLA Hospital Donor Program of his organs. Several people he never knew have a new lease on life because of Len.

Lesson #5- Believe in Yourself
Len was extremely confidant. He only had a high school education, but he built a tremendously successful business. He would tell the story that he was not an overnight success in the insurance industry. According to Len, his success came though hard work and sheer determination. I saw Len go through many challenges in the years I coached him, but I never saw him lose his confidence. He was the eternal optimist and his confidence and optimism allowed him to overcome substantial obstacles and reach lofty heights.

Lesson #6- Live Courageously
Len didn't have the look of the stereotypical hero. He was average height and a little overweight, but he was as courageous as anyone I know. For the entire time I knew Len he was suffering from Interstitial Lung Disease, which is a rare and brutal disease. This disease, which ultimately reduced his lung capacity to only 3%, took away his lung's natural ability to clear the fluid that builds up each day. To clear the fluid, Len had to spend several hours each night and day coughing the fluid out. I know that this caused him tremendous hardship, but I never heard him complain. Because of his reduced lung capacity he was often out of breath, but again, he would never complain. In fact, if the discussion turned to his health, he would tell you how much better he was feeling and quickly change the focus to something positive and uplifting. Even with this lung disease, he led his company at an extremely high level and set an example that we can all follow.

Lesson #7- Love
Len was a strong man with a big heart. He wasn't always comfortable expressing the love and appreciation he felt for the people he worked with, but they all knew what was in his heart. Towards the end of his life though, he ended every call or email by letting the people he was able to communicate with that he loved and appreciated them. When you know that time is running out and you have nothing to lose it's much easier to express how you feel, but what if in honor of Len we all started doing that more often right now. What have you got to lose?

I hope that the lessons I learned from Len will help you too. I miss him, but he will live in my memory until it is time for me too to leave this earth.

God Bless You Len. Yours was a life well lived.

Live Your Dreams!

Tom

Thomas McCarthy & Associates

www.TomMcCarthy.com

I discovered this poem 15 yrs ago from an anonymous author after one of my closests friends passed away.  I would like to now dedicate this poem to my CEO & to anyone who's lost someone who has made a positive impact in their life like he has in mine.

You never said I'm leaving,

You never said Good-Bye.

You were gone before we knew it,

and only God knew why.

A million times we needed you,

a million times we cried.

If Love alone could save you,

You never would of died.

In life we love you dearly,

In death we love you still.

In our hearts you hold a place

that no one could ever fill.

It broke our hearts to lose you,

but you didn't go alone.

For part of us went with you,

the day God took you home.

To Leonard Aoyama .... Thank you for all that you are and for all that you've done in not only my life but everyone else that you have touched.  We love you & You'll forever be remembered!

Binh Nguyen                                                                                                                 

p.s. IMHO...The two most priceless gifts from GOD are (1) the special people that were placed into

your life & (2) the great moments or memories that you shared with them.  Life is short, live to love & love to live!