Leaving your job can be a good or bad thing for you, but it tends to create a lot of chaos in the short term either way. And that chaos can lead you to overlook certain important steps in the transition, like rolling over your Prudential 401k.
Failing to roll over an old 401k can end up causing you problems down the line, so it’s important to be sure you’re exploring all of your options. Fortunately, the process for rolling over your Prudential 401k can be relatively simple and easy.
Here’s a closer examination of what it takes to complete your rollover from your old Prudential 401k.
Step 1: Explore Your Options
When you leave your job, you’ll have five basic rollover options for what to do with your 401k, each of which can be right or wrong for you depending on your financial situation. The five options are:
- Keeping it in the same account
- Moving it to a new 401k account
- Rolling it over to a traditional IRA
- Converting it to a Roth IRA
- Cashing out
Leaving the money in place is obviously one of the easiest options, but you can’t make contributions to that account anymore and won’t be able to borrow against it.
Moving it to a new 401k consolidates your retirement accounts, but if the new account manager charges higher fees or doesn’t offer certain financial products, you might not like this option.
Rolling it over into an IRA will also consolidate your funds in an account you control, but IRAs have fewer legal protections in bankruptcy proceedings and you won’t be able to borrow against the account.
A Roth IRA can be an important way to diversify your income sources in retirement, but you will owe taxes on your savings when you convert.
And finally, cashing out will mean having immediate access to most of your money, but you’ll end up paying out a big chunk in taxes and penalties.
Step 2: Set Up Your Rollover Account
In the event that your funds aren’t in the new retirement account within 60 days of them being pulled from the old one, it’s treated as a withdrawal for tax purposes and you’ll owe a hefty penalty. As such, you should set up your rollover account in advance so that you can send your savings there directly.
You will also get the benefit of the new company managing your account helping you through the process. These companies are competing for your business, so they should be more than willing to provide you with ample support and direction in the process and might even have some additional perks offered to entice customers.
Of course, if you’ve been happy with Prudential, you can simply open a rollover account with it and keep your money under its management.
Step 3: Contact Prudential
Prudential will have a clear method for processing your rollover request, so simply reach out to a representative.
One important thing to remember, though, is that you want to be sure you’re getting a “direct rollover,” meaning the funds are sent directly to the new account and not to you to deposit at a later date. An “indirect rollover,” where Prudential makes a check out to you, will usually result in you owing taxes on the rollover.
Step 4: Report the Rollover on Your Taxes
If you do a direct rollover, you shouldn’t owe any taxes on the transaction, but you’ll still need to report it to the IRS. You should receive a 1099-R form from Prudential that you can give to your tax professional or include with your tax forms.