Money Management

With an indirect rollover, it’s on you to make sure your money lands in your new account on time. Read on to learn more. 

The retirement account you start off saving in isn’t necessarily the account you’ll have forever. Many people switch jobs every few years, for example. And when they do, they often take their 401(k) plan balances with them and move that money into a new retirement plan.

If you have a 401(k) through an employer you’re leaving or have already left, it’s generally best not to keep your money where it is. A better bet is usually to move that money into a new qualified retirement plan. That could be an IRA you open and manage yourself, or a 401(k) that a new employer is offering you.

But in some cases, you might have to play an active role in getting that money transferred over. And you’ll need to be really careful to follow the rules so you don’t end up getting taxed and penalized in the process.

How an indirect rollover works

With an indirect 401(k) rollover, your old 401(k) funds aren’t transferred directly into a new retirement plan. Rather, you get a check for your old 401(k) balance, and it’s then on you to move that money into another retirement account, whether it’s a 401(k) or an IRA.

The problem with an indirect rollover is that if you don’t complete it within 60 days, the money you’ve cashed out of your 401(k) will be treated as a withdrawal. And if you’re not yet 59 1/2 years old, it will be considered not just a regular withdrawal, but an early one.

In that case, you’re usually looking at a 10% penalty on the sum in question. So if you have a $10,000 401(k) balance you don’t move over to a new plan in time, you’ll face a $1,000 penalty.

Plus, unless you have your money in a Roth IRA or 401(k), your retirement plan withdrawals will be taxable. So in addition to a 10% penalty, you might also face taxes on your 401(k) balance if you don’t get those funds moved over in time.

Be careful when using your 401(k) as a short-term loan

For some people needing to move over a 401(k), a direct rollover just isn’t an option, so they’re stuck with an indirect rollover. But you may be tempted to intentionally request an indirect rollover if you have a short-term need for money and want to borrow some temporarily from your 401(k) balance.

This, however, is a very risky thing to do. If you don’t manage to transfer over your entire balance to a new retirement plan within 60 days, any funds you don’t move over will be considered a withdrawal, leaving you on the hook for taxes and possibly an early withdrawal penalty, depending on your age.

So tempting as it may be to hit up your 401(k) during that time when you’re rolling over your money, you’re better off finding another way to borrow if you have that need.

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Many consumers use cash back cards to pay for their everyday expenses. Check out which perks are a must when getting a cash back credit card. 

Cash back cards are a popular choice — the most popular, in fact. A credit card study by The Motley Fool Ascent found that 68% of Americans have a cash back card. No other type of credit card was held by more than 32% of Americans.

There’s a lot to like about cash back credit cards. They’re easy to understand, and they make it a breeze to earn money back on what you spend. Still, to save as much as possible, it helps to know what features to look for in a cash back credit card. Before you apply for one, make sure it has the following perks.

1. A high cash back rate on your everyday expenses

One of the main differences between cash back cards is their cash back rates. Bonus categories vary quite a bit from card to card. Some earn more back on groceries, others on dining, and others at online retailers, to name a few common bonus categories.

When you’re shopping for a cash back card, start by thinking about where you spend the most money. That way, you can pick a card with bonus categories that fit your spending habits. Here are some card options that earn bonus cash rewards in popular spending categories:

Gas and groceries credit cardsDining and restaurant credit cardsCredit cards for online shoppingCredit cards for entertainmentCredit cards for streaming services

You could also go with a card that earns flat-rate cash back, regardless of the type of purchase you make. There are a few cards that offer 2% back on purchases, which are a good choice if you don’t want to bother with bonus categories.

2. A competitive welcome offer

Many cash back cards have welcome offers for new cardholders. If you fulfill the terms, you earn extra cash back. For example, a card may have a welcome offer of $200 cash back if you spend $500 in the first three months.

As you compare credit cards, also compare the welcome offers for the cards you’re interested in. They aren’t the only thing that matters, but they can be a great way to earn lots of bonus cash right off the bat. If it’s a dead heat between two or more cards, then the best welcome offer could work well as a tiebreaker.

3. Easy cash back redemptions with no redemption minimum

With most cash back cards, redeeming your cash back is simple enough. But there are exceptions, which is why it’s important to check the rules a card has on redemptions first.

Start by seeing how you’ll be able to use your cash back. Ideally, you’ll be able to redeem it as a statement credit on your credit card bill, or a direct deposit to your bank account. Watch out for cards that give you more limited options, such as store gift cards.

Also, look for redemption minimums. Many card issuers let you redeem any amount of cash back, including as little as $0.01. Others set redemption minimums, such as $25. This makes it harder to use your cash back, especially if you ever stop using the card and don’t have enough cash back to meet the minimum requirement.

4. Purchase protections

You’re probably going to be using your cash back card for most of your purchases. After all, the more you use your card, the more cash back you earn. In case anything goes wrong with a purchase, it’s a good idea to get a card with some complimentary extra protections.

There are several coverages that some credit cards offer on eligible purchases. Here are a few worth looking for:

Purchase protection: Covers new purchases against damage or theft within a set time period, such as 90 days from the date of purchase.Return protection: Covers returns that the merchant doesn’t accept within a set time period, such as 90 days.Extended warranty: Automatically extends the manufacturer’s original warranty.

The exact terms and coverage limits depend on the card. You may not find every single type of coverage on the card you want, but a quality cash back card will normally have at least one or two.

With so many cash back cards available, it can be hard to decide which one to get. By focusing on a few key perks, you’ll have a much easier time narrowing your list down to the best credit cards for you.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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