401(k) Rollovers in Washington State and Oregon: What You Need to Know
401(k) Rollovers in Washington State and Oregon: What You Need to Know
When you leave a job or retire in Washington State or Oregon, one of the key financial decisions you may face is what to do with your 401(k)-retirement plan. A popular option is to roll over your 401(k) into an Individual Retirement Account (IRA). This can provide more control over your investments, a wider range of investment choices, and potentially lower fees. Here’s a quick overview of what you need to know about 401(k) rollovers in Washington State and Oregon.
Overview of Washington State 401k Taxes
Washington State does not impose an income tax, so retirement income is not subject to state taxation. Unlike retirees in many other states who must pay state income taxes on 401(k), IRA, and pension income, Washington retirees are exempt from these taxes.1 However, federal taxes may still apply to these income sources.
Overview of Oregon 401k Taxes
Oregon exempts Social Security retirement benefits from state income tax. However, income from retirement accounts such as 401(k)s and IRAs is taxed at the full state income tax rate. Pensions in Oregon are also taxable.2 The state has no sales tax and property taxes that are slightly below the national average, although these can vary depending on which county you live in.3
Why Roll Over a 401(k)?
- Access to Possibly More Investment Options: Those who roll over their 401(k) into an IRA or Roth IRA may gain access to a potentially broader array of investments, such as stocks, bonds, ETFs, and real estate, compared to the limited selection often offered in many employer-sponsored 401(k) plans.
- Simplicity: If you’ve changed jobs multiple times, rolling your 401(k)s into a single IRA can help simplify your retirement planning, making it easier to track your savings and manage investments.
- Roth IRA tax-free growth: Contributions to a Roth IRA are made with after-tax dollars, which means that you pay the taxes upfront. You can withdraw your contributions at any time, for any reason, without tax or penalty. Earnings in your account grow tax-free, and there are no taxes on qualified distributions.4
How to Roll Over a 401(k) in Washington and Oregon
The rollover process in Washington State and Oregon is similar to the nationwide procedure. Here’s a basic rundown:
- Choose Between a Traditional or Roth IRA:
- If you roll over a traditional 401(k) into a traditional IRA, the tax-deferred status of your funds is maintained.
- If you’re rolling over to a Roth IRA, you’ll pay taxes on the funds converted, but the account grows tax-free in the future.
- Select an IRA Provider: Washington State and Oregon residents have access to a wide variety of IRA providers, including financial advisors, banks, credit unions, and brokerage firms. Shop around to find a provider locally. Criteria to look at may include fees charged, customer service levels, and a good selection of investment options.
- Request a Direct Rollover: To avoid taxes and penalties, you can request a direct rollover from your 401(k) plan administrator to your IRA provider. This ensures the funds are transferred directly, rather than being paid to you first.
- Invest Your Funds: Once your funds are in the IRA, you’ll have the flexibility to choose investments that align with your financial goals.
Conclusion
Rolling over your 401(k) to an IRA in Washington State and Oregon can provide several benefits, including more investment options, lower fees, and greater control over your retirement savings. With no state income tax, Washington residents may find this move even more advantageous. Be sure to research IRA providers carefully, and consult with a financial advisor, if needed to ensure that your rollover is in line with your long-term financial goals.
About Harlow Wealth Management
Based out of Vancouver, Washington – Harlow Wealth Management, Inc. is an independently owned and operated advisor. Our financial advisors serve clients living in the greater southwest Washington and Portland metropolitan areas. While our firm was officially created in 2005, founder, Danny Harlow, has been serving the retirement financial planning needs of the Vancouver, WA and Portland, OR community since 1973. We focus on helping those who are retired or about to retire by building a customized retirement strategy.