Ubiquity

401k Rollover Benefits, Rules, and Considerations

Keeping Your 401k Assets in Your Old Plan is Not Your Only Option

If you have money in a former employer’s 401k plan, you are probably eligible to take your money out, but don’t be too hasty.

The retirement plan rules are designed to help you keep growing your tax-deferred savings until you retire if you keep your savings in a tax-qualified plan. However, keeping your 401k assets in your old plan is not your only option. You can also choose to roll your savings over to other savings vehicles.

Done correctly, a rollover from one employer’s plan to another employer’s plan or an IRA will not trigger any tax consequences and will enable you to continue building your retirement savings until you retire and beyond. Here are some things to consider as you think about your options.

Option

Potential Pros

Stay on former employer’s plan

  • Employer acts as a fiduciary in managing the
    plan and selecting investment options
  • May have lower investment fees than an IRA
  • May offer robust employee support services
    such as call center/website/tools
  • Your assets or money are protected from
    creditors

Roll over to new employer’s plan

Roll over to an IRA

Take the cash

The best choice for you will depend on your financial needs and savings objectives. You will want to compare the investment options, fees, and services in a new employer’s plan or an IRA with your old employer’s plan. It is often a good idea to seek the assistance of a financial or tax professional.

How to set up a 401k rollover

Although each plan administrator will have its specific rollover documentation and procedures, here are the general steps involved in a 401k rollover.

Need help? Contact us today

Confirm your eligibility for a rollover

You will need to confirm with your former employer that you are eligible to take a distribution and roll it over to another plan or IRA. Your former employer should provide you with a written explanation of your distribution and rollover options and the tax consequences of taking a distribution.

Select the employer plan or IRA provider you want to receive your rollover

You may find it beneficial to consult with a tax or investment advisor to evaluate your rollover options.

Sign required documentation

You will need to sign certain documents to set up an IRA and request the rollover from your former employer. If you choose a rollover to your new employer’s plan, you will be required to complete documents authorizing the rollover and certifying that the distribution is eligible to be rolled over.

Select investments

In an IRA and most 401k plans, you will determine how your rollover dollars will be allocated among the available investment options.

Report the rollover to the IRS on your income tax return

Direct rollovers between retirement plans or between a retirement plan and a traditional IRA are tax-free transactions. If you request to withdraw money from your 401k plan in a check payable to yourself instead, you can still make an “indirect rollover” to a plan or IRA if you deposit the money within 60 days following the date you receive it. When you have a check payable to yourself, your 401k administrator must withhold 20% of the taxable distribution amount and send it to the IRS as a pre-payment of income tax owed on that money. To complete a tax-free rollover, you must make up the 20% withheld when making the rollover into another plan or IRA. If the 20% is not made up, it will be taxable to you in the year of distribution and subject to the 10% early distribution tax if you are under age 59½.

401k distributions you cannot rollover

Even if you are eligible to withdraw your money from your 401k plan, there are some types of distributions that cannot be rolled over to another plan or IRA. You must take these kinds of withdrawals in cash.

  • Distributions you are required to take after turning age 70½
  • A retirement plan loan that is treated as a distribution (e.g., defaulted loan)
  • A hardship distribution you took because you had a qualifying financial emergency
  • Distributions of excess contributions and related earnings
  • A distribution that is part of an arrangement that pays you a series of equal payments
  • Distributions to pay for life insurance coverage
  • Dividends on employer securities that are distributed from the plan
  • S Corporation allocations treated as deemed distributions

401k rollover options

You may roll over pre-tax or tax-deductible retirement savings between the following types of savings vehicles:

  • Qualified plans including a 401k, profit sharing, or money purchase pension plan
  • 403(b) plans (tax-sheltered annuity)
  • Governmental 457(b) plan (deferred compensation plan)
  • Traditional IRA
  • SEP IRA
  • SIMPLE IRA (after 2-years from initial SIMPLE plan contribution)

If you made Roth contributions to your former employer’s plan, you might only roll over the Roth 401k assets to a Roth account in your new employer’s plan or to a Roth IRA.

“Ubiquity is amazing! Always ready to answer questions (even the silliest/smallest ones) and never makes me feel ridiculous for asking them. Additionally, Meli is wonderful at returning calls and really making her clients feel valued and listened to! I feel 100% secure in all things related to retirement because I know Meli has our back :)”
- David Miller, Coffee Meets Bagel, Inc
See more testimonials

In the Media

© 2018 Ubiquity Retirement + Savings / Privacy Policy
1160 Battery Street, Suite 350, San Francisco, CA 94111 / Support: 855.401.4357

Facebook Twitter LinkedIn YouTube

© 2018 Ubiquity Retirement + Savings / Privacy Policy
1160 Battery Street, Suite 350, San Francisco, CA 94111 / Support: 855.401.4357