What is a 401k Rollover?

See 401k rules; keep savings tax-deferred with a 401k rollover.

If you have a 401k account and you leave your job, you could transfer that money to another account, a process known as a 401k rollover. A 401k is a highly regulated retirement account, so you might only be able to roll it over if certain qualifying events occur.

Click through and learn what you need to know about 401k rollovers.

401k Rollovers Keep Your Retirement Savings From Being Taxed

Typically, you’ll have the option to roll over your 401k plan to another tax-deferred account, such as an IRA or another 401k plan, when you leave a job or retire. However, you can also roll over your 401k to another plan even if you’re in the process of working on it. The easiest way to roll over your 401k is to have the sending and receiving firms process the transaction electronically.

You can also choose to receive your distribution as cash, but to avoid making the transaction taxable, you’ll have to deposit it into a tax-deferred account within 60 days. Whether or not your 401k becomes taxable, you’ll have to report the transaction on your taxes.

Related: What Age Can You Take Money Out of a 401k?

401k Rollover Options

If you leave your job for any reason, you’ll typically have to make a decision regarding what to do with your existing 401k. When it comes to a 401k account with a prior employer, your options are essentially threefold.

The three 401k rollover options are:

  • Roll it over to another 401k with a new employer.
  • Roll it over to an IRA.
  • Leave it with your former employer. You can only leave a 401k plan at a former employer with the employer’s permission, so you’ll have to ask your employer this 401k question because not all plans allow this.

A final option is to take a cash distribution, which, although technically not a rollover, is a way to get money out of your former employer’s 401k plan.

Why a Rollover Can Make Sense

The main benefit of a 401k rollover is that you can keep your money tax-deferred. However, rolling over your 401k can also provide you with diversification benefits. If your new 401k has better investment options, or if you prefer to manage your own accounts in an IRA, then rolling over your 401k might be a smart move.

Learn More About: 401k Rollover Options