by Catherine Rein
(last updated May 12, 2009)
New federal laws make it very attractive to save your money in an IRA account and to leave it there until retirement. Tax-free retirement investment amounts have been recently increased and there are even "catch-up" allowances for workers older than 55 who are trying to save more before retirement. On the downside, there are also more penalties for workers who take out their money before retirement. Follow these steps to rollover old 401(k) accounts into new IRAs:
You need to remember to deposit your check in the rollover IRA within 60 days to avoid fees and penalties. To meet the 60-day rule, start counting on the day after you receive the check and include the day you deposit the money into your IRA.
Early withdrawal of 401k investments is taxed at the worker's marginal tax rate and a 10% penalty is also tacked on. A better option, if emergency cash is desperately needed, is to take a loan from a 401k. The interest rates are lower and the interest paid goes back into the account. If you leave the job, the entire loan must be paid in full or it will be treated as an early distribution subject to the taxes and penalties mentioned earlier.
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