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As you get closer to your retirement years, the thought of a pension rollover will become increasingly frequent. Essentially, a pension rollover incorporates the process of removing your retirement funds from your employer’s pension plan to a brand new retirement account, such as a Roth IRA or any other retirement account.
By opting for a pension rollover, you can keep up your tax-deferred status while getting more control over your finances, such as lower fees and flexibility.
Here is how to prevent costly mistakes with a pension rollover.
Understand Your Options
To avoid costly mistakes, you must do thorough research so you can actually understand your options with the pension rollover. With that said, it is certainly in your best interest to get in touch with your previous pension plan administrator so you understand all your options, including whether or not it is possible for a direct pension rollover. Similarly, you will get to understand whether you have the option of getting a lump sum of your pension. Once you know what your options are, you will be in the best position to make a decision regarding your pension rollover while avoiding critical mistakes.
Request A Direct Pension Rollover
To protect your savings and to avoid costly mistakes, it is certainly in your best interest to request a direct pension rollover. What this means is that you should get in touch with your pension plan administrator and ask them for a direct rollover so that your retirement savings can go straight from your old country plan to the new one. This direct rollover will enable you to avoid potential penalties and taxes.
Select A Retirement Account
Once you have decided that it is indeed time for a pension rollover, you must be mindful when selecting your new retirement account. With that said, typically you have two options: you can either go with a Traditional IRA, or you can select a Roth IRA. With these two options, if you believe that you will fall into the higher tax bracket, opening a Roth IRA is in your favor.
Nonetheless, by selecting a suitable retirement account, you can benefit from greater control over your investment with a lower fee.
Contact A Financial Advisor
Even if you believe that you have your financial situation under control, it is still in your best interest to contact a financial advisor for consultation. The underlying reason is that a lot changes throughout the years, which is why the advice that you can get from a professional financial advisor can help you make accurate comparisons between the best investment options and fees, or you can choose a new retirement account that is aligned with your financial goals.
Be Aware of Rollover Rules
Now, if you want to make the right decision and avoid costly mistakes with a pension rollover, you must understand all the important rules that are part of the rollover. With that said, if you have to, for some reason, opt for an indirect rollover, be mindful of the 60-day rule that comes with an indirect rollover. According to this rule, you have 60 days to deposit your savings into a new retirement account, which means that if you miss the deadline for some reason, your money will be categorized as a taxable distribution.
Conclusion
Rolling over your pension can be a smart financial move, but it requires careful attention to detail. By understanding your options, requesting a direct rollover, choosing the right retirement account, and consulting with a financial advisor, you can avoid common pitfalls and protect your savings. Staying informed about rollover rules, especially deadlines and tax implications, ensures that your transition is smooth and beneficial. With the right approach, your pension rollover can become a powerful step toward long-term financial security.
