How to Roll Over Your 401k

Here’s what you need to know to complete a 401k rollover.

Ideally, you’ve been contributing to your 401k at work to save for your comfortable retirement. But consider what happens to the money if you leave that job or want to add an individual retirement account to your investment mix. Here’s what you need to know about rolling over your 401k.

How to Roll Over a 401K to an IRA

You can roll your traditional 401k into a Roth IRA or a traditional IRA. Rolling it into a Roth IRA means you’ll have to pay taxes on the money you contribute, but you’ll withdraw the money tax-free in retirement.

Here’s how to roll over a 401k into an IRA:

1. Open an IRA Account

You can do this at an investment brokerage like Fidelity or Vanguard, or you can go to an investment advisor. Be aware of two things when you open the account: minimums and fees. Unless you have a lot of money in your 401k plan, you might have to shop for an account with a low minimum. And watch out for account fees and transaction fees.

2. Request the Rollover From Your Company

Fill out a form for your company to roll the money over into your new IRA account. Have the new account number on hand and follow the instructions on the form exactly or your rollover could be delayed. Ideally, you want your company to send the money directly to your new IRA account. This is called a direct rollover because the money goes directly from your 401k to your new IRA. Your employer should not withhold any taxes.

3. Meet the Deadline

Follow up to make sure the administrator processes your request in a timely manner, and then contact the investment company or broker where you opened your IRA to make sure the money arrives there in time. The money must be deposited into your IRA within 60 days of its distribution from your 401k, which shouldn’t be a problem if you have it sent directly to your IRA.

4. Choose Your Investments

You’ll likely have more investment choices with an IRA than you had with your 401k, so you might want to get some help with this. Expert advice should be available online or by phone if you opened your IRA at an investment brokerage. Otherwise, sit down with your financial advisor to go over your options. Your choices will depend on how close you are to retirement and how much risk you feel comfortable taking.

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How to Roll Over an Old 401k to a New 401k

If you’ve gotten a new job with an employer that also offers a 401, you have a couple options. You can leave your 401k at your old company or you can take your 401k with you to your new job.

Here’s how to roll over your old 401k to your 401k with your new employer:

1. Open a New 401k Account

Contact the plan administrator at your new job to open a 401k account.

2. Complete and Submit the Paperwork

If necessary, get assistance with the paperwork to move your money into your new 401k. Submit the completed the forms and any required information to set up your new retirement account.

3. Choose Your Investment

Once the money is added to your new 401k, choose from the investments your new plan offers.

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Important 401k Rollover Rules

Before you start the process to rollover your retirement savings, you should be aware of the following 401k rules:

  • If you don’t put the money into another qualified account — like an IRA or another 401k — within 60 days, you’ll have to pay taxes on all the money you took out of your 401k. You’ll also pay a 10 percent penalty if you’re under age 59.5.
  • Some plans don’t allow you to roll over your 401k money if you are still employed at the company — you must leave for another job or retire to be eligible to roll over the funds.

You can add to your IRA once you’ve rolled over your 401k, and your contributions are deductible if you roll over into a traditional IRA. Or you can contribute to the 401k plan at your new employer. Either way, continuing to set aside money to fund a comfortable retirement is a smart move.

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