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Rolling over your retirement plan

You can find gold on Youtube. This was clearly done to celebrate someone's retirement, but it made me laugh so I'm sharing it with you.


Hello readers!! I'm here today to talk about something super exciting: rolling over your retirement plans!

I know, I know. Most people don't get excited about retirement in general (unless you're almost at that age), but it is important. And since I recently rolled over a retirement fund for the third time in my life, I thought it might be a good idea to give you all the 411 on how it's done.

Typically you roll over your retirement funds when you are leaving a job and starting another. That reason accounts for two of the times I rolled over my retirement fund. Another reason may be that you found a better institution to house your personal retirement fund (better interest rates, lower investment costs etc.) and want to move it there. The difference between these two reasons, is that you have less of a (read: no) say in where your job houses its retirement funds, than you do in where you house your personal one.

The first thing to consider is what type of account you are rolling over. Do you have a Traditional 401k or a Roth IRA, or any of the other options? This matters because it has implications for your taxes. The rule of thumb is that in order to avoid paying penalties during tax season, roll over your existing retirement fund into a new one that has the same tax implications. You can check out different types of retirement accounts here.

You can, of course, decide that you want to change the type of account you have. Maybe you've done your research and realized the Traditional 403b isn't really working for you and you'd prefer a Roth 403b. If your job offers more than one type of plan, or if you are doing a personal rollover, you can certainly do this. Just be aware that you may need to pay the aforementioned penalties.

Another thing to consider is where you are going to put your newly rolled over retirement fund. If you are rolling over your account due to a new job, this is easy. You will be putting your retirement fund into the institution that they provide for you. If you are doing a personal rollover, there is more research involved. You will want to take a look into what the interest rates are, how much does trading/investing cost, if you will be able to trade/invest personally or if you can have someone at the institution doing that for you. Decide what feature is most important to you and how involved you want to be in managing your retirement fund and that will help you pick which bank to place your retirement fund in. I currently have my retirement fund in Ally Bank.

Once you've determined the retirement account type and location, open the account! To do that, follow the instructions provided to you by your job or the institution. Included in these instructions should be the documentation you need to roll over your current accounts in order to fund your new account. You have 60 days from the opening of the new account in which to implement the rollover. Outside of 60 days, you may be subject to paying penalties.

Although you are provided instructions on how to roll over your account, I found it worth reaching out to both the new and the old institution to get more clarification before submitting my documents. Because you could potentially be subject to penalties, it is worth doing this process correctly the first time.

I called the new institution first and had them walk me through the forms they provide. If you have any confusion related to the forms, this is the time to ask. I also asked them what the typical timeline is for funding the account and anything else I should know. I was informed that the best way to transfer over funds was by check directly from the old institution to the new. This was the best policy because if you operate as the middle (wo)man (old institution sends check to you, you send check to new institution) you could potentially be subject to penalties (20% tax on the rollover money) because it may be looked at as you withdrawing funds early rather than conducting a rollover. The second reason a check was better is because some institutions charge for a wire transfer; using a check meant that you would get all your money, even if it was a little slower.

My next conversation was with my old institution. I let them know that I was instituting a rollover and that they should receive documentation from my new institution. I asked them if there was anything I needed to do or send them to facilitate this process. I also asked them what the timeline was for sending over the money. In this conversation, I would also ask if there is anything you need to do to close out the account once the money is safely in your new retirement fund. I did not ask this initially and had to call back to get this answered.

The one new development that happened during my third rollover was the two ways of transferring investments. This last time, I did my rollover for personal reasons rather than a job switch. This might be the reason why I had to address the stocks and mutual fund holdings I had this time around. I was told I could either liquidate my investments or do a like-kind exchange. It is important to know whether or not the old and the new account allows for liquidation or like-kind rollovers. In my case, my old institution allowed for both, but my new institution only accepted liquidated rollovers.

Liquidation meant that I had to sell all my shares in stocks and mutual funds; the money from those trades was what moved during the rollover. A like-kind exchange means that you can dispose of an asset and replace it with a similar asset without incurring a tax liability from the sale of the initially held asset. Depending on what your old and new institutions allow, you must decide how you want to roll over your funds, by liquidating or doing a like-kind exchange. Your old institution can walk you through the steps on how to do this. I spent 15 minutes on the phone with a nice gentleman as he talked me through liquidating my investments.

The most important part of rolling over your retirement plan is following up! I reached out to both institutions repeatedly to ensure things were moving, we were on timeline and that I didn't have to provide additional information. I am glad I did this because my old institution blocked my rollover initially (for no discernible reason) and didn't inform me. I had to call and check and that re-instated the process. In another follow up call I found out that I didn't need to do anything to close my old account, but that they will keep it open for a certain period of time to ensure any dividends I receive are successfully rolled over to my new account.

I've said it before and I'll say it again, planning for retirement may not be fun, but it is necessary. You want to flourish and live your best life when you have no work to do! Hopefully this post makes rolling over your retirement fund less of a mystery and more of an achievable task. Get rolling!

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