Article
401(k)/403(b) Rollover
A 401(k) is a retirement savings plan sponsored by an employer. It is invested in stocks, bonds and mutual funds. It allows employees to save and invest a portion of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account, usually during retirement. These were provisioned in 1978 and began replacing pension plans in the 1980s.
Always invest in an available 401(k) if there is an employer match. The employer match is free money.
One of the key benefits of a 401(k) plan is the potential for employer matching contributions. This means that an employer may match a portion of the employee's contributions, effectively providing free money to boost their retirement savings. Additionally, the contributions to a 401(k) are made on a pre-tax basis, reducing the employee's taxable income for the year they are made.
There are limits to how much an individual can contribute to their 401(k) each year, defined by the IRS. It's important to be aware of these limits and plan contributions accordingly.
Withdrawals made before the age of 59½ may be subject to penalties, although there are specific circumstances under which these early withdrawals can be penalty-free.
401(k) plans offer a range of investment options, and it is up to the employee to choose how to allocate their contributions. Regularly reviewing and adjusting investment choices can help align the employee's retirement savings strategy with their financial goals and market conditions.
They are also subject to annual management fees, typicall 1-1 1/2%.
Most 401(k) plans allow you to borrow against them. The interest paid goes back to your plan (Be The Bank), instead of paying a bank, thus boosting your retirement balance. These loans must be paid back within 5 years.
Retirement distributions (withdrawals) are taxed as ordinary income.
When dispursements are taken, any amount can be withdrawn and continue=d until the 401K) balance is zero, then it is gone.
Recommended 401(k) Strategies
It is usually best to contribute only the amount equal to what an employer matches. For example, if an employer matches 3% up to 10% of your income, contribute at least 10% because with the match, that is a 13% contribution towards your retirement. Any additional investment amount allowed by the IRS can be invested into other higher yield products.
At 59½ you can roll your 401(k) over to any other qualifying product without penalties, even if you are still working and contributing to the 401(k).
This is a great opportunity to earn more for your retirement. The average 401(k) APY is 5-8% (before fees), Annuity based products can yield 8-14% APY (many without fees).
403(b) plans and 401(k) plans are very similar but with one key difference: whom they're offered to. While 401(k) plans are primarily offered to employees in for-profit companies, 403(b) plans are offered to not-for-profit organizations and government employees, including public school employees.
Most 401(k)s allow your to select the risk level desired, these fall into the Tier 1-4 risk range.
How to move IRA or 401k money and avoid the penalties / out of pocket taxes
Presentation by Tony Martinez (founder of TKO Financial Netowrk)
https://www.youtube.com/watch?v=vl9Qrkn0jVU
If you are interested in exploring a rollover, please contact us for a free no obligation consultation.
Page Last Updated: 15 June 2025
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