The 4 Most Common 401(k) Rollover Mistakes and What to Do in 2020

Available for Interviews: Don Garman

Don Garman is the Founder and Chief Investment Officer of Mirador Capital Partners and Co-Founder of Tri-Valley Ventures. A seasoned investor in both public and private companies for over 30 years, Don leads Mirador’s Investment Committee and oversees each of the firm’s proprietary investment strategies.

 

What Don Garman can say in an interview on
401(k) Rollover Mistakes and What to Do in 2020:

Rolling over a 401(k) is a task millions of American’s are faced with every year. Whether this is your first or fourth, it’s important to remember that the choices you make in this situation are irreversible so you should be confident with your plan.

These are the 4 most common mistakes investors make when rolling over their 401(k) and what you should do instead.

  1. Making Indirect Rollovers. The number one mistake investors make is doing what’s known as an Indirect Rollover. This means having a check sent to their home or bank before rolling it over to their new account. The issue with this is that the IRS will treat this money as ordinary income and tax it as such if the funds are not re-invested in a qualifying account within 60 days. Investors often forget about the deadline and are forced to pay dearly.
  2. Leaving Your Plan With a Former Employer. Another common mistake investors make is leaving their 401(k) plan with a former employer. 401(k) plans, by design, have limited investment options. Investing this money in an IRA will give you a wider range of investments to choose from and likely lower your cost of investing. If you’re sentimental about the investments in the account, know that the same investments can be made outside of the plan.
  3. Cashing Out the Account Entirely. When you take funds out of your 401(k) permanently you are subjecting that money to ordinary income tax, plus a 10% early withdrawal penalty if you are under the age of 59 ½. If you desperately need funds, consider these penalties before tapping into other funds you may have in savings or brokerage accounts.
  4. Not Consolidating Former Plans. While it’s not necessarily a mistake, over-complicating your investment accounts can be burdensome and in some cases it may cost you with fee layering. This is another reason to consolidate all of your former 401(k) plans in an IRA.
    The smart thing to do in this scenario is to request a Direct Rollover. Your existing employer will send the account to your new employer, or IRA, rather than to you firstavoiding any costly accidents.

Taking action now to avoid these common rollover mistakes will save you thousands of dollars—and headaches—in the future.

 

Interview: Don Garman

Don Garman has earned the prestigious designations of Certified Financial Planner® and Certified Investment Management Analyst®. Prior to founding Mirador, Don served his clients at two of the nation’s largest advisory firms. He is very active in the Tri-Valley area and supports many community organizations, including The First Tee of the Tri-Valley, The George Archer Foundation, and the Livermore Valley Wine Growers Foundation. He also serves as President of the Tri-Valley Cal (UC-Berkeley) Alumni Club. Don lives in Pleasanton with his wife Mindy and has two children, Emma (Georgetown University) and Scott (high school sophomore). He is an avid drummer, golfer, and snowboarder.

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