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401k Rollover Options And Things You Should Know

Dec 11

If you are one of the many people that have left or lost jobs especially during the coronavirus pandemic, you may be thinking about some of the options you have with your 401k investments. It is important to know that you have at least 4 options you may want to consider depending on your retirement investment goals.

The 4 options

The first option, you may decide to leave your 401k where it is currently, so in that case you don’t have to roll the money over. The second option is to cash the 401k plan out completely, but that attracts taxes on the money you are getting out of the 401k plan. If you are still below 59 ½ years old, you also get a 10% penalty. Your third option is if you are going to work for a new company that accepts rollovers, then you can rollover your old 401k plan into your new 401k plan. The fourth option allows you to rollover your 401k out into your own self-directed IRA account. Look for the best 401k rollover offers to keep fees at minimum and get the help you need if not experienced as the process can be complicated sometimes. 

Special tax treatment qualifications 

If you happen to have any company stock in your 401k plan that has highlighly appreciated, you may already be qualified for Net Unrealized Appreciation (NUA) and special tax treatment on long term capital gains that you should take advantage of. This takes into account the difference between the original cost basis and the current market value of the company stock. For example, if you pull out stocks valued at $100,000 from your 401k while the original cost basis was only $20,000, the Net Unrealized Appreciation will be the difference of $80,000 and this qualifies for a more favourable long-term capital gains tax treatment.