You have several options for rolling over your employer-sponsored 401(k) retirement plan if you have quit working for FirstEnergy. Choosing where to roll over your account can potentially save you tens of thousands of dollars â or cost you the same amount if you choose incorrectly.
Rolling over a 401(k) with high-fee investments into an individual retirement account (IRA) with lower-cost investment options or into your current employer's 401(k) plan could save you a significant amount of money. According to the U.S. Department of Labor, a 1 percent increase in fees could result in a 28 percent decrease in your retirement account balance.
If you work for FirstEnergy and a rollover makes sense for you, here's how to transfer your old 401(k) funds to a new one.
Â
How to transfer your 401(k)
- Follow these five steps to get your 401(k) rollover underway:
- Determine the type of account you desire.
- Determine where you wish the funds to go.
- Open an account and learn how to execute a rollover.
- Commence the rollover procedure
- Act quickly
Â
What is a rollover of a 401(k)?
FirstEnergy employees should know that a 401(k) rollover is the transfer of funds from one 401(k) plan to another 401(k) plan or an IRA. The IRS allows you 60 days from the date you receive a distribution from an IRA or retirement plan to roll it into another plan or IRA.
Â
How to get started with your 401(k)Â rollover.
-
Determine the type of account you desire.
Your first choice is the type of account to which you will transfer your funds, and this choice is heavily influenced by the options available to you and your desire to invest.
For FirstEnergy employees considering a rollover, you have two major options: transfer to your current 401(k) or transfer to an IRA. As you evaluate your options, think about the following questions:
Â
- Do you want to invest the money yourself, or would you prefer someone else to do it? A self-directed IRA may be a viable option for those who wish to manage their own finances. Even if you want someone else to manage your IRA, you may want to consider a robo-advisor, which can tailor a portfolio to your needs. However, 'do-it-for-me' investors may prefer a rollover into their current employer's 401(k) plan.
- Does your old 401(k) offer low-cost investment options with the potential for high returns, and does your current 401(k) offer comparable or superior options? If you are considering a rollover to your current 401(k) plan, you should ensure that it is a better fit than your previous plan. If not, a rollover into an IRA could make a lot of sense, as you will be able to invest in any marketable asset. Otherwise, maybe it makes sense to keep your old 401 (k).
- Do you have access to financial planners through your current 401(k) plan? In this case, it may be prudent to roll your old 401(k) into your new 401(k) (k). If you transfer funds to an IRA, you must choose investments and manage the account yourself or hire a professional.
Â
FirstEnergy employees must keep in mind that prior to transferring funds, you must determine which type of account best suits your situation and needs. Those who need assistance with investing may benefit more from a rollover to their current 401(k) plan, whereas those who want to invest the money themselves and have the knowledge to do so may prefer an IRA.
Â
-
Determine where the funds will go
For FirstEnergy employees transferring funds from an old 401(k) to a new one, you know exactly where your money is going. However, if you're rolling it over to an IRA, you'll need to open one at a bank or brokerage if you haven't already.
If you already have an IRA, you may be able to rollover your 401(k) into it, or you can create a new IRA.
Â
-
Activate your account and learn how to execute a rollover.
Open your IRA account once you've found a brokerage or robo-advisor that meets your needs. Once the account is created, you can begin the process of transferring your 401(k) funds into it.
FirstEnergy employees should keep in mind that each brokerage and robo-advisor has its own rollover procedure, so you will need to contact the institution for your new account to determine the exact requirements. You must strictly adhere to their procedures. If you are rolling over funds into your current 401(k), contact the administrator of your new plan for instructions.
For instance, if the 401(k) company is sending a check, your IRA institution may request that the check be written in a specific manner and may require that your IRA account number be included on the check.
Again, carefully adhere to your institution's instructions to avoid complications.
Featured Video
Articles you may find interesting:
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 11 Questions You Should Ask Yourself When Planning for Retirement
- Worst Month of Layoffs In Over a Year!
- Corporate Employees: 8 Factors When Choosing a Mutual Fund
- Use of Escrow Accounts: Divorce
- Medicare Open Enrollment for Corporate Employees: Cost Changes in 2024!
- Stages of Retirement for Corporate Employees
- 7 Things to Consider Before Leaving Your Company
- How Are Workers Impacted by Inflation & Rising Interest Rates?
- Lump-Sum vs Annuity and Rising Interest Rates
- Internal Revenue Code Section 409A (Governing Nonqualified Deferred Compensation Plans)
- Corporate Employees: Do NOT Believe These 6 Retirement Myths!
- 401K, Social Security, Pension – How to Maximize Your Options
- Have You Looked at Your 401(k) Plan Recently?
- 11 Questions You Should Ask Yourself When Planning for Retirement
- Worst Month of Layoffs In Over a Year!
Â
-
Commence the rollover procedure
If you are working for FirstEnergy and wish to complete a rollover, you will need to fill out paperwork, and may need to communicate with your providers. You have several options for transferring funds from the old provider to the new one, but direct rollover is your best option.
In a direct rollover, your 401(k) funds are transferred directly into your new account without your intervention. It is essential to specify a direct rollover so that the check is not made payable to you. Withdrawals made prior to age 59 1/2 are subject to a 20 percent mandatory tax withholding and a 10 percent additional IRS penalty.
Â
-
Act quickly
For FirstEnergy employees, you have 60 days from the date you receive your retirement plan distribution to deposit it into a qualified account if you are conducting a rollover. Otherwise, the event will be taxable.
Again, each institution may have its own method for transferring funds. Your 401(k) administrator can send a paper check to you or the institution where you are opening your IRA, or the funds can be transferred electronically via wire transfer.
If you receive a check in the mail, you must ensure that it is deposited into your new account. Act swiftly.
Â
What if you already have a 401(k) with your former employer?
For FirstEnergy employees who have a 401(k) from a former employer, you should evaluate whether a rollover makes sense. You may want to consult a tax expert to ensure that you are making the best decision for your specific circumstances.
Here are some options to consider as you consider what to do with your old 401(k):
Â
Maintain your 401(k) with your former employer.
In this instance, you will not make any changes. Ensure that you actively monitor the performance of your investments in the plan and remain informed of any significant changes.
If you enjoy your current investment options and are paying low fees for them, this option may be suitable for you.
Transfer your 401(k) into an IRA.
For FirstEnergy employees wanting to roll over their 401(k) and avoid a taxable event, this option makes sense. Existing IRA holders may be able to consolidate their IRAs into a single account. In addition, an IRA provides numerous investment options, such as low-cost mutual funds and ETFs.
Greg McBride, CFA, chief financial analyst, notes in a Bankrate article that a multitude of mutual fund companies and brokerages offer no-load mutual funds and commission-free ETFs.
'Also, make sure you meet any account minimums to avoid account maintenance fees for having a low balance,' McBride advises. 'Index-based mutual funds will have the lowest expense ratios. Therefore, there is a way to significantly reduce the number of unnecessary fees.'
Ensure that your IRA institution will accept the type of rollover you wish to make by contacting it beforehand.
In a Bankrate article, Michael Landsberg, CPA/PFS, principal at wealth management firm Homrich Berg claims that 'according to the letter of the law, it is acceptable [to roll a 401(k) into a Roth IRA]. In practice, however, your 401(k) plan may not permit itâ
Â
Transfer your previous 401(k) to your new employer's 401(k) plan
For FirstEnergy employees, If your new employer's 401(k) plan accepts rollovers and the investment options are superior or less expensive than your previous employer's 401(k), this may be a good option. You must conduct research to determine which plan is superior and meets your needs.
Â
The benefits and drawbacks of rolling over a 401(k)
Advantages of a 401(k) rollover:
- You can consolidate your 401(k) accounts.
For FirstEnergy employees who switch jobs frequently, you may have multiple scattered 401(k) accounts. The more accounts you have, the more difficult it may be to make deliberate choices. By keeping your retirement funds in a single location, you may be able to manage them more prudently.
- In an IRA, you will have more investment options.
With a 401(k), your investment and account options are limited to those offered by the plan. An IRA can provide you with a wider range of investment options. In an IRA, you may be able to invest in stocks, bonds, and other vehicles that your 401(k) may not permit.
You cannot contribute to your previous employer's 401(k) plan. But if you roll this money over into a traditional IRA, you can contribute up to the annual maximum to this traditional IRA over time. You must adhere to the IRA contribution rules.
- You'll have the option to move the account wherever you'd like.
Â
If you already have a financial advisor or financial planner with whom you work, for example, you can take your IRA funds to any advisor you choose. Or perhaps you already have a brokerage where a portion of your funds are managed, and you wish to move all of your funds there.
Â
Negative aspects of rolling over your 401(k)
- You like your current 401 (k)
If the funds in your old 401(k) do not charge excessive fees, you may wish to remain with that plan. Compare the plan's fund fees to those of an individual retirement account (IRA).
For FirstEnergy employees, in many situations, 'If it isn't broken, don't fix it' is the best piece of advice. If you like your current investment options, it may make sense to remain in your previous employer's 401(k) plan.
- A 401(k) may offer advantages that an IRA does not.
If you keep your retirement savings in a 401(k), you may be able to withdraw this money at age 55 without incurring an additional 10% early withdrawal tax, as you would if you kept your savings in an IRA.
For FirstEnergy employees with a 401(k), you can avoid this penalty if distributions are made to you after leaving your employer in or after the year in which you turned 55.
This loophole is inapplicable to IRAs, where withdrawals before age 59 1/2 incur a 10% penalty.
-
You cannot borrow from an IRA, as you can from a 401(k)
Numerous 401(k) plans allow for loans. Although withdrawals from your retirement account are not recommended, it may be prudent to have this option available in the event of a dire emergency or temporary bind.
If you rollover your funds into an IRA, however, you will not be eligible for a 401(k) loan. You may wish to roll over your old 401(k) into your new 401(k) in order to maintain your ability to borrow money.
Â
Added factors to consider
In a 401(k), net unrealized appreciation (NUA) and company stock are allowed
For FirstEnergy employees, transferring company stock held in a 401(k) to a taxable brokerage account to take advantage of net unrealized appreciation, or NUA, could save you a significant amount of money on taxes. NUA is the difference between the price you paid for company stock in your 401(k) and its current market value.
For instance, if you purchased company stock for $20,000 and it is now worth $100,000, the NUA is $80,000.
The advantage of the NUA strategy is that it allows you to avoid paying ordinary income tax on these distributions of stock from your retirement account. According to Landsberg, this can reach up to 37 percent, the highest tax bracket at present.
You will instead benefit from capital gains tax treatment, which even at the highest tax bracket is only 20%. However, high earners will be subject to an additional 3.8% net investment income tax. And a NUA may be subject to a 10% early withdrawal tax if the funds are transferred before age 59 1/2.
NUA makes the most sense when the disparity between tax rates is greater.
According to a Bankrate article, 'Net unrealized appreciation is a very potent instrument if used properly,' says Landsberg. Therefore, if you properly apply the NUA rules, you can be inventive and potentially earn a substantial windfall.
Â
Beware 401(k) balance minimums
For FirstEnergy employees, If you have left the company and your account balance is less than $5,000, your former employer may require you to transfer it. Consider rolling it over into the plan of your new employer or into an IRA.
According to FINRA, if your previous 401(k) has a balance of less than $1,000, your employer has the option of cashing out your accounts.
Always keep track of your hard-earned 401(k) funds and ensure that they are invested or maintained in a sensible account.
Â
Rollover Facts to Consider:
According to a Pew survey :
- Some recent retirees transferred their savings to IRAs (46%), while others reported leaving their savings in their most recent employer plan (54%).
- In contrast, near retirees were less likely to plan on leaving their savings with their employer plan at retirement.Â
- A quarter of near retirees said they were unsure about what they planned to do with their retirement savings, and only 16% said they would roll over their savings into an IRA.
- Half of near retirees and 55% of retirees cited their preference for their employer-sponsored planâs investment options as the most important reason for not moving their retirement savings from their current plan.
- Near retirees who planned to roll over their savings into an IRA were motivated by a desire to have greater control over their investments. Although greater control was also a factor for retirees, they were more likely to say that they rolled over their savings in order to gain access to professional advice.
How does FirstEnergy ensure that employees understand their pension payment options after retirement, and what resources does FirstEnergy provide to help them navigate these options effectively? Discuss the various types of pension plans available and how they cater to different employee needs at FirstEnergy.
Pension Payment Options: FirstEnergy ensures that employees understand their pension payment options by providing an online pension pay statement system, which allows them to view their payments and tax information. This online platform also offers access to various pension plans like qualified and non-qualified pensions, catering to different employee needs, such as federal and state tax withholding options for qualified pensions(FirstEnergy_Online_Pens…).
What are the steps that FirstEnergy employees must follow when changing their direct deposit information for pension benefits, and how does FirstEnergy facilitate this process? Explore the importance of keeping direct deposit information updated, especially for retired employees who rely on timely monthly payments.
Direct Deposit Changes: To update direct deposit information for pension benefits, FirstEnergy employees need to complete Form X-901, available on their website. FirstEnergy simplifies the process by providing clear steps on how to obtain and submit the form, ensuring that retirees receive their monthly payments without interruption(FirstEnergy_Online_Pens…).
In what ways does FirstEnergy support employees in understanding the tax implications associated with their pension plans, and what specific IRS forms should they be aware of? Discuss how FirstEnergy employees can proactively manage their tax withholding choices and the potential consequences of inadequate planning.
Tax Implications: FirstEnergy helps employees manage tax implications of their pension plans by directing them to the correct IRS forms, such as Form W-4P for federal taxes. They also provide assistance through their online platform to help employees adjust their tax withholding to avoid potential underpayment issues(FirstEnergy_Online_Pens…).
FirstEnergy has a unique approach to online pension statements. How does this change from traditional paper statements impact the way employees access and manage their pension information? Evaluate the benefits and possible challenges faced by employees in transitioning to this digital format.
Online Pension Statements: FirstEnergy’s transition to online pension statements, effective March 2020, eliminates mailed statements. This change enables employees to conveniently access their pension details through any web browser, although some may find it challenging to switch from paper to digital(FirstEnergy_Online_Pens…).
What procedures should FirstEnergy employees follow if they encounter discrepancies in their pension payment amounts, and how does the company assist them in resolving these issues? Examine the importance of clear communication channels between employees and FirstEnergy’s HR service center for addressing payment concerns.
Resolving Payment Discrepancies: If there is a discrepancy in a pension payment, FirstEnergy advises employees to contact their HR Service Center for resolution. Clear communication channels, such as dedicated phone numbers, are provided to facilitate prompt handling of these issues(FirstEnergy_Online_Pens…).
Describe how FirstEnergy’s pension plan aligns with the company’s overall commitment to employee benefits and welfare. What role does the pension plan play in attracting and retaining talent within FirstEnergy, and how does it compare to industry standards?
Pension Plan and Employee Benefits: FirstEnergy’s pension plan aligns with the company’s broader commitment to employee welfare by offering structured retirement benefits. This plan is instrumental in attracting and retaining talent by offering competitive benefits comparable to industry standards(FirstEnergy_Online_Pens…).
How can employees at FirstEnergy effectively contact the company for further information about their pension benefits? Elaborate on the various communication methods available, including phone numbers, email, and online resources, ensuring they know how to reach out for specific inquiries.
Contacting FirstEnergy: Employees can contact FirstEnergy for pension-related inquiries through multiple channels, including a dedicated HR Service Center phone number, email options, and an online pension portal. These methods provide flexibility for addressing specific pension concerns(FirstEnergy_Online_Pens…).
With the introduction of new IRS limits for retirement plans in 2024, what changes should FirstEnergy employees be aware of regarding their pension contributions? Discuss how these changes could affect their retirement savings strategies and overall financial wellness.
2024 IRS Limits: FirstEnergy employees should be aware of new IRS limits for retirement plans that may affect their pension contributions. These changes could influence their retirement savings strategies, requiring them to review and adjust contributions to optimize their financial wellness(FirstEnergy_Online_Pens…).
What resources does FirstEnergy provide to help employees better understand the differences between qualified and non-qualified retirement plans, and how do these distinctions affect their retirement benefits? Look into how employee education plays a pivotal role in helping them make informed decisions.
Qualified vs. Non-Qualified Plans: FirstEnergy offers resources to help employees distinguish between qualified and non-qualified retirement plans, such as detailed forms and guidelines. Understanding these distinctions helps employees make informed decisions about their retirement benefits(FirstEnergy_Online_Pens…).
In the context of FirstEnergy’s commitment to environmental stewardship, how has the company’s shift to online pension statements reflected its sustainability efforts, and what additional measures could be implemented to enhance this initiative? Consider the long-term benefits of such practices for both the company and its retirees.
Sustainability Efforts: FirstEnergy’s shift to online pension statements supports their environmental stewardship goals by reducing paper use. While this initiative reflects their sustainability efforts, additional measures like expanding digital tools and resources could further enhance these practices(FirstEnergy_Online_Pens…).