How to Rollover Your 401(k)

November 1st, 2021 by
How to Rollover Your 401(k)

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Like many, chances are that you will be employed by several employers during your work life. As part of your benefits package, you will most likely have a 401(k) option as well. 

When you direct the transfer of funds from your existing 401(k) account to a new 401(k) account or an IRA, you have rolled over your account, Bank Rate says

The Internal Revenue Service (IRS) gives you 60 days from when you receive the funds from your existing account and roll it over to your new plan or IRA.

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There are five steps you need to do to get started with rolling your account from one plan to another:

  • Determine what type of account you want
  • Determine where you want your money to go
  • Open an account and find out how to do the rollover
  • Start the process of rolling over your funds
  • Do not hesitate to act

The first step in the rollover process is to determine what type of account you want your funds rolled over into. another 401(k) or an Individual Retirement Account (IRA). 

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Before you make a decision, it is recommended that you ask yourself a few questions, such as:

Would you like to have someone invest your money or do you prefer to do the investing yourself? 

If you would like to do it yourself, an IRA may be a good option for you. If you prefer to have someone else help you manage your funds, then you may prefer to make a rollover into your current employer’s 401(k) plan.

Does your current 401(k) offer similar or better options than your previous account has? Does your current account have potential attractive returns as well as does it offer similar or better options than your current plan has?

If your new plan does not have as good of benefits as your old account, you may want to consider an IRA.  If you are wanting to roll over your current account you will want to ensure that it is a better fit than your old plan.  If it doesn’t, then rolling your money over into an IRA could be better since you will be able to invest in anything that trades in the market, since you have more control of your money. Otherwise, it may make more sense to let your money sit in its current account and not roll it over.

Do you currently have access to financial planners to help you invest your money with your current 401(k) plan?  

If you do it would make good sense to roll over your old 401(k) into your new 401(k). Should you choose to roll over your investment into an IRA, you will have to either manage your account completely, pick investments and such, or hire someone to manage your account.

At the end of the day, before you actually transfer your investment, you will need to decide on what type of account will best suit your needs in the present as well as in the future. 

If you need help in investing you may be better off rolling over to a 401(k) account. If you like to be hands-on and invest money in areas that are of interest to you and you have the skills to do so, then an IRA is a definite option.

Here are some steps to take in the rollover process:

Determine where your money should go

If you are rolling from one 401(k) to another 401(k) it is practically an automatic process. If however, you choose to go from a 401(k) to an IRA, you will need to do some research and find a financial institution that will be able to assist you with your account.

Open up an account 

If you are rolling over a 401(k) to a new 401(k) the process is rather seamless.

When going from a 401(k) to an IRA, it can be a little trickier. Each financial institution has its own process for completing the rollover.  You will want to make sure that all processes and procedures are followed through to avoid any complications. 

For example, when it comes to writing a check from your old 401(k) account to be deposited in your new IRA account, the IRA institution may want the check written in a certain way and they may require that the check also have your IRA account number on it as well.

Begin the Rollover Process 

You will be asked to fill out paperwork to open your new account as well as to close out your old account.  You may have several options to transfer the money from the old account to the new one, but your best option is a direct rollover. 

With a direct rollover, your money is sent straight from your 401(k) into your new account without you touching the money. One important note is to make sure that the check is not made out to you, but to the financial institution. If this happens, it could trigger a mandatory 20% tax withholding and the IRS will charge a 10% bonus penalty on withdrawals made before the age of 59 ½.

Act Quickly

If you are doing a rollover you have 60 days from the date you receive your disbursement to get it deposited into a qualified account. Otherwise, you could be taxed on those funds.

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