The time has come, and you can see your retirement date just ahead. You have decided to move your 401(k) dollars out from your Lockheed Martin provider to your own personal IRA. Ask yourself this before you get started: do you know how to transfer your 401(k) correctly, so that you are not assessed taxes and possibly any penalties? Keep reading to find out the correct way to transfer your Lockheed Martin 401(k) to your personal IRA.
Many people use financial terminology loosely when describing how money is moved from a defined contribution plan to a Traditional IRA account. It is important that you use the correct language when moving your money and even more critical that you fill out the forms properly.
Definitions
- Rollover: Your former employer writes a check payable to you. You deposit the funds into your Traditional IRA account.
- Direct Rollover: Your former employer sends you a check payable to the IRA custodian (the vendor you select to hold your IRA account). You send that check to the IRA custodian for deposit into your Traditional IRA account.
- Transfer: Your former employer sends a check payable to your IRA custodian directly to them for deposit into your Traditional IRA account.
When transferring money from your 401(k) to a Traditional IRA, have the check made “payable to” the new IRA custodian to avoid a mandatory 20 % tax withholding that would be applicable if the check is made payable to you.
- Unless you can have additional outside funds totaling 20% of your rollover amount to complete the move within 60 days, you will owe income tax and a 10% early withdrawal penalty (if under age 59½) on the amount withheld.
- In addition, you will incur an opportunity cost of any interest that would have been earned from the 20%
The chart below shows the difference between an improperly executed IRA rollover and a properly executed IRA transfer.
Don’t cost yourself $21,600. Work with a professional financial planner who can help you take the right steps to transfer your 401(k) into the investment most suited for your specific needs. If you don’t have a financial planner or would like a further information and direction, we’d be happy to speak with you. Give us a call today at 817-210-3444 or click HERE to book a complimentary consultation with one of our Lockheed Martin specialists who can review your situation and help you continue to plan for retirement.
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