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401K Rollovers

Everything You Need to Know about 401(k) Rollovers

If you leave your current employer, you don’t have to cash out your retirement funds and start from scratch. Instead, we can help you roll the funds to another 401(k) or IRA, allowing you to keep the funds tax-deferred. Our financial advisors are here to help you with the rollover process to make it as easy as possible for you.

How 401(k) Rollovers Work

When you leave your current employer, you have the option to leave your 401(k) in place, roll it over into another 401(k) or IRA, or receive a disbursement of your retirement funds. If you cash out, you will pay taxes and penalties on that amount. We encourage most people to take advantage of the rollover rules. This keeps the tax benefits of your retirement account in place and helps you move closer to a comfortable retirement without the setback of starting over.

Direct & Indirect Rollovers

There are two types of 401(k) rollovers, direct and indirect. With a direct rollover, the funds in your retirement account are simply deposited into your new retirement account, whether that’s another 401(k) or an IRA. An indirect rollover involves additional handling. First, your current plan’s sponsor will deposit your retirement funds in your bank account or send you a check and withhold 20% for taxes. Second, you must deposit 100% of the original funds into the new retirement account within 60 days. This is to avoid taxes and early withdrawal penalties.

Rollover Options

When you move your retirement funds, you have a few options. If your new employer offers a retirement plan, in most cases you can use a direct rollover to combine the old with the new.

You can also roll your 401(k) into an IRA and keep the tax-deferred status of your retirement fund. You’ll have more investment options with an IRA, but there are some drawbacks, too. For example, you can’t take out a loan against an IRA, although that may be permissible with your 401(k), and you can’t contribute as much to your IRA as you can to a 401(k).

It’s also possible to roll your 401(k) into a Roth IRA. Roth accounts have the advantage of providing tax-free income during retirement. However, when you convert your retirement account to a Roth account, you have to pay taxes on that income, which is why you may not want to convert all of your retirement assets at once.

Our financial advisors can help you select the rollover options that are right for you with a wholistic financial plan.

Rollover Requirements

It’s important to meet the rollover requirements to keep the tax-deferred status of your retirement account. While there’s no limit to how much you can rollover, you can only take advantage of the 401(k) rollover rules once per calendar year. Additionally, you must complete the transfer of your retirement funds within 60 days of receiving the disbursement.

FAQs about 401(k) Rollovers

What Should I Do with My 401(k)?

If you’re leaving your current employer, rolling over your 401(k) to another 401(k) or IRA is usually the best option. If you don’t move the funds, you won’t be able to make contributions to that retirement account. You may also end up with multiple accounts that have to be actively managed for best results. As the years go on it can be hard to continue to keep track of your 401(k) when a previous employer goes out of business, changes names, or changes 401(k) providers.

Is There a Penalty for Rolling Over My 401(k)?

If you don’t follow the rollover rules and aren’t retirement age, expect to pay an early withdrawal penalty on top of income taxes. Fortunately, you can avoid penalties by rolling over your entire balance into another qualified retirement account within 60 days.

Is a Roth IRA Better?

A Roth IRA just works differently. Instead of deducting contributions and getting taxed on withdrawals, you contribute after-tax money to receive tax-free distributions during retirement. There are some benefits to a Roth IRA, but when you convert your retirement account to a Roth account, you will pay income taxes on that amount.

When Can I Rollover My 401(k)?

You can rollover your 401(k) after leaving your employer. If you rollover your 401(k) while you’re under the age of 59 ½, pay special attention to the 60 day rule so you don't find yourself paying income taxes and penalties.

Let Us Help with Your 401(k) Rollover

Retirement rollover rules are complex and mistakes are costly. Our experienced financial advisors can help you manage your 401(k) rollover and help you avoid taxes and early withdrawal penalties. Call us today to talk about your rollover options.

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Before deciding whether to retain assets in a 401(k) or roll over to an IRA, an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. Please view the Investor Alerts section of the FINRA website for additional information.