I was just reading another blog about why it’s important to do a 401k rollover correctly via a direct transfer and not handle the transfer check yourself.

The blog said… “Another HUGE reason you don’t want your employer to hand you a check is that they must withhold 20% and deposit those taxes with IRS (just in case you never rollover the funds, IRS will have collected a big chunk of the tax money you will owe). Here’s an example. You have $100,000 in your company plan for your IRA rollover. You ask for a check. You employer sends you $80,000 and sends $20,000 to IRS. You have 60 days to deposit $100,000 into an IRA rollover account to avoid all taxes. So you must take $20,000 from your own pocket so that you’ll have the entire $100,000 to rollover. Yes, come tax time next year, IRS will return the $20,000 that your employer withheld.”

Yes folks that is true, if you don’t properly set up the 401k rollover;  you may have to pull monies out of your own savings to ensure the full 100% balance of the 401k is rolled over to your new IRA account.  Otherwise you get dinged and dinged big time depending on how much was in the 401k.  In summary, it’s better to have your401k funds be sent directly to your new custodial account.

What type of custodian account should you use and who should you go with?  Well that all depends on where you are at financially and what your horizon is for retirement.

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