How to Rollover a 401(k)

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Categories: Finance | How Tos

  • If you have switched jobs recently, you can roll over your previous job's retirement fund to another retirement account, with a new employer, or you can choose to roll the money into an IRA. Read on to learn how to rollover a 401(k) successfully.

  • Disclaimer

    The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.

  • Introduction

    • Many employers offer retirement accounts, such as 401(k)s, where you can save for retirement with pre-tax dollars. Some employers even match part of your contributions. But what if you leave your current job? What happens to that money? You have three options when you leave your job, if you'd like to continue to have the money grow tax free for retirement. You can keep the money in the plan, roll it over to a plan with a new employer, or roll it over into an IRA.

  • Step 1: Contact the Receiving Fund Manager

    • After you have determined the institution you will be rolling your money into, contact them for the paperwork.
    1. There will be a form that will need to be completed with your name and account details.
    2. If you are rolling into a new company's plan, the human resources department should be able to put you in contact with the institution that manages their plan who can get you the application.
    3. If you are rolling into an account with a bank or other financial institution, you will need to:
      1. Set up a rollover IRA.
      2. After you have set up the account, you can complete the paperwork.
    4. In most cases, the receiving institution will contact the sending institution with your instructions.

  • Step 2: Contact the Sending Fund Managers

    • In some cases, you'll need to forward the forms you filled out with the receiving institution yourself, or the sending institution may have its own paperwork that needs to be completed. Its a good idea to contact the institution, let them know what you're doing, and verify their procedures.

  • Step 3: Transfer Funds

    • Once you have contacted the correct individuals and financial institutions, the funds can be transferred to your new account. In most cases, this will happen directly, without the money passing through your hands.

  • Indirect Rollover

    • In some cases, the sending financial institution will cut you a check. This can happen because of their procedures, or if you requested a withdrawal, rather than a transfer.
    1. The sending institution may have withheld taxes from the check.
    2. In order to avoid paying taxes on the withdrawal, you need to redeposit it in an employer's plan within 60 days of when it was disbursed.
    3. 100% of the withdrawal must be redeposited, even if you didn't receive 100% because taxes have been withdrawn. You'll need to come up with the amount that was withheld as taxes from another source, so that you can rollover 100%.
    4. If taxes were withheld, you will get credit for taxes paid when you file your return the following year, potentially increasing the amount available for refund.

  • Conclusion

    • Since many employers charge custodial fees for retirement accounts of former employees, rolling the funds over into a new employer's plan or into an IRA can make sense. Make sure that you fill out the appropriate paperwork, and select a direct transfer, if offered. If a direct transfer is not available, it is essential that you rollover 100% of the withdrawal within 60 days, including any amounts withheld for taxes.


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