Tip of the Week
Changing jobs may represent an exciting time in your career by providing new challenges and an opportunity to enhance your skills and abilities. On the other hand, if you're leaving a job due to a lay off, termination or move, it can be a stressful process. And the decision of what to do with your 401(k) plan can add to the stress. It's important to understand all of the choices you have and the impact of the decision you make.
- If your vested account balance is $5,000 or more, you can leave your money where it is, and taxes won't be due until you withdraw money from the plan. If your vested account balance is under $5,000, you may be forced by your employer to take a distribution. One option is to roll your 401(k) account into an Individual Retirement Account. If you request a direct rollover -- meaning you have the money transferred directly into the IRA -- you won't owe taxes until you withdraw money from the account. You can also receive the money first and then roll it to an IRA. This is called an indirect rollover. You will have 60 days to deposit the funds in an IRA. Because the money was not rolled directly to the IRA, 20 percent will automatically be withheld. You will need to make that up when you send the money to the IRA administrator.
- If you are going to work for a new company and will have a 401(k) plan there, you can roll your former company's 401(k) money into your new employer's plan. As with a rollover to an IRA, if you request a direct rollover, you won't have to pay taxes until you withdraw money from the account.
- You can take a cash distribution for the full amount of your balance, but, of course, you'll pay income tax on the money you receive. In addition, if you are under age 59 1/2, you may be subject to a 10 percent federal income tax penalty. And because you are receiving the money, 20 percent of your balance will be automatically withheld.
-- ARA
BBB Watch
The Better Business Bureau warns that deceptive door-to-door magazine sales crews are often hitting the pavement and looking to earn a quick buck during the summer. Many of these companies employ crews of high school and college-age people who are trying to earn money over the summer. These crews are sent to communities to knock on doors and sell magazines -- sometimes without appropriate licensing. In the sales pitch, the representative might explain they are working to help get their lives back on track, raising money on behalf of a charity or for a school trip or even selling subscriptions to support our military.
