How many employees do you have?Just me and/or my business partner/spouse
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.
Stay on former employer’s plan
Roll over to new employer’s plan
Roll over to an IRA
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.
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.
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.
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.
401k rollover options
You may roll over pre-tax or tax-deductible retirement savings between the following types of savings vehicles:
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.
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