The Power of a 401(k) Rollover

What would you think if you opened the mail and found a check with your name on it a for $16k? This happened to me recently. But then I remembered: “Oh yeah! My 401(k) rollover is here.”

About 2/3rds of Americans have access to some kind of retirement plan through their employer (don’t worry other 1/3rd of workers, you still have options. I’ll cover you in another post). The U.S. Internal Revenue Tax Code Section 401 Subsection (k) allows companies to set up tax-deferred plans to share a part of their profits with their employees. “Tax-deferred” means the money is put in before taxes. Those income taxes will be taken out when the account owner removes their money. The employees may also choose to direct a portion of their pre-tax paycheck to the same account in their name. All this cash can then be invested in pre-selected investment funds as the employee sees fit. Over time, these contributions and investments can add up to big dollars which the employee will be able to use like a personal paycheck in retirement.

The best part is that I never missed this money

Now, in the grand scheme of retirement, my $16,000 is not a whole lot. However, I managed to accumulate that much savings within just 2 years. And I wasn’t maxing out my contributions– not by a long shot! Nope, I made sure I directed enough of my paycheck to receive the employer match. Because that match was part of the compensation they promised me. And I’ll be damned if I was letting any of my benefit go to waste. At the end of my first year I went in and bumped that amount up to match what my pay increase was going to be for the year.

The best part is that I never missed this money. Like I said at the beginning, I had almost forgotten about it. Because the amounts were automatically pulled from my paycheck, I never saw them. If I had stayed with that employer they would have sat and continued to grow. But because I am no longer an employee, I can withdraw my funds and do what is called a “rollover” into an IRA. Since the IRA is a specially designated retirement plan I don’t have to pay withdrawal taxes on my rollover. All the money was added to the retirement savings from my other jobs and can continue growing in one place. I could have left it in the plan, but I wanted to simplify my life by having it all in the same place.

I also could have just cashed the check and lived a baller life for a little while. But that money was put away for my future, and that’s how I’m going to keep it. Besides, I would have had to pay income taxes AND early withdrawal penalties if I had cashed out. No thank you. I’ll gladly exercise some patience if it means I get all my money back later.

Think a 401(k) rollover might be right for you?

Helping you simplify your retirement life (especially if it is decades in the future) is one of the many services Valkyrie Financial offers. Most people I talk to admit that they have no idea what to do with this money. If you have a retirement account — or even a couple– still at a job you no longer work at and have thought to yourself “I really should do something with that”, let’s find out if a 401(k) rollover is right for you.

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Wisconsin CERTIFIED FINANCIAL PLANNER™ professional and educator Sarah Paulson


Meet Sarah Paulson, your

Although I’m a born-and-raised Wisconsinite – living in Appleton, Wisconsin –

I consider myself more of a world citizen.

True story: once when going through international customs in Amsterdam, the officers asked why they couldn’t find a Dutch residency permit in my American passport.

I bring a big world picture to my money management advice so you can view the wider world, too.

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