401k Rollover Help Center

Welcome to 401kRollover.com, where our mission is to provide you with the most accurate, unbiased and up-to-date information about 401k rollovers and IRA custodian-to-custodian transfers. Rolling your 401k can be a very simple process that, with the help of a competent professional, should take no more than two to three weeks.

What are the advantages of rolling your inactive 401k into a self-directed IRA plan?

The freedom and diversity that IRAs provide cannot be matched by 401k providers. Your investment options will grow exponentially the moment you compete your 401k rollover. By converting your inactive 401k into an IRA you can invest in a wide range of alternative investments that most employers don’t support, such as real estate, private businesses and precious metals.

Additionally, the fact that IRAs are self-directed means that you no longer have to worry about losing account equity or matched contributions if the company that originally sponsored your plan goes out of business, gets bought out or files for bankruptcy. Far too many hard-working Americans have had the rug pulled out from under them because their 401k plans were absorbed or liquidated during the recent financial crisis.

Are other employer-sponsored retirement plans eligible for an IRA Rollover?

Absolutely! The following types of retirement accounts may be eligible for a transfer to a self-directed IRA:

· 403(b)

· 409A Deferred Compensation Plans

· 457 Plan

· Defined Benefit Plan

· Employee Stock Ownership Plan (ESOP)

· Money Purchase Plan

· Payroll Deduction IRAs

· Profit-Sharing Plan

· SARSEP

· Simplified Employee Pension (SEP)

· Savings Incentive Match Plans for Employees (SIMPLE IRA)

· Thrift Savings Plan (TSP)

Direct custodian-to-custodian rollovers do not result in any tax consequences, but 401kRollover.com recommends that you always consult a qualified tax professional to make sure that you’re bases are covered and that you are legally eligible to roll over your account(s).

Your 401k Rollover Options

1. Cash out of the account.

Cashing out of a 401k can be advantageous, but the drawbacks are too many for most people to handle comfortably. On the one hand, you gain immediate access to your cash. If an unexpected financial hardship arises you can use the money to get yourself out of that tight spot.

The allure is instant cash, a loan of sorts, usually made with an honest intent to “put it back.” Future tax-deferred earnings evaporate along with nearly one quarter of the wealth contained in the assets. Furthermore, with substantial withdrawals, contribution limits will constrict how quickly an account can be restored.

Taxation and penalties on early withdrawals are steep, especially if you’re very young. Taking cash out of a 401k takes away the tax-deferred status of those funds, so your income taxes could jump dramatically, especially if you enter a higher tax bracket. Expect your employer to withhold 20% of your 401k funds for tax payment purposes. On top of the taxes, a 10% early withdrawal penalty applies if you take delivery of the money before the age of 59 ½.

In most circumstances cashing out is a trap akin to payday loans. It provides a short-term fix at the expense of considerable wealth and potential for future growth. This makes the cash-out option the least attractive of the four available options.

2. Leave your money in your previous employer’s retirement plan.

By leaving your 401k in your previous employer’s care, you funds retain a tax-advantaged status and growth. Most employers require that you have at least $5,000 in the account when you leave the company in order to you to keep it there, and you won’t be able to contribute to the account after you leave the company.

If the 401k was started with a large employer, it may be to your benefit to leave it there after your employment ends. Why? Some large companies give their employees access to low-cost institutional investments that aren’t available to individual investors. If you decide to leave your old 401k with your previous employer, however, make sure you don’t forget about your money. The average person holds at least 10 jobs between the ages of 18 to 44, so take care to not let your hard-earned money get lost as you change jobs over the years.

Fees are another factor that must be taken into consideration when figuring out your 401k plans. Employer-sponsored plans are notorious for hidden administrative and service fees that can reduce the account balance by up to 25% over the years. If your previous employer is charging you 1% or more annually in fees, seriously consider moving the money away.

3. Transfer your 401k away from your old employer and into your new employer’s plan.

Some employers will allow new employees to transfer funds from old 401ks into the new company’s plan. You will need to study the fee structures and plan offerings of both companies before deciding to combine your old 401k plans with a new plan, but if the new company allows account combinations you could save thousands per year in administrative fees.

4. Execute a 401k Rollover by placing your funds into a self-directed IRA.

There are a litany of advantages to transferring an old 401k into a self-directed IRA. The account will retain its tax-advantaged status. The potential for the account to grow into a respectable nest-egg will be even greater since the fees for IRAs are usually less than those for 401k plans, and IRA custodians offer a wider array of investment vehicles from which you can choose.

If you decide that turning an old 401k into an IRA is the best option for you then there are dozens of companies that can help you open a new IRA. You will then call your 402(k) sponsor and direct them to transfer the funds into your IRA. The 401k administrator will need some information from you to execute the transfer, such as contact details for the new IRA custodian as well as information on the brokerage account that will receive your money. The process is relatively simple and since 401k to IRA rollovers are so common most investors will not face any difficulties with the transfer.

9 Common 401k Rollover Questions.

1. What is a 401k Rollover?

A rollover is the process of transferring one’s retirement savings from an employer-sponsored plan into a self-directed Individual Retirement Account (IRA).

2. When can I take money out of my 401k plan?

You can take money out of a 401k at any time, but if you fail to meet certain age requirements the taxes and penalties can reduce your savings by up to 50%. Generally speaking, you can withdraw money from a 401k penalty-free after you reach the age of retirement.

3. What if I have a loan from my now-inactive 401k?

Your company may allow you to keep making payments after you leave, but some companies require full repayment of 401k loans within a short time after you leave the company. The balance of the loan may be taxed as income by the IRS, and extra penalties may come into play depending on your age.

4. Can I take the money out of my 401k first and then decide what to do?

While legal, this is not advisable. Good choices begin with good planning, so carefully consider all options before making the decision to withdraw money from your 401k. Why? 401k sponsors will withhold 20% of your funds when you make an early withdrawal. Uncle Sam says that’s the law, and there is no getting around it.

Additionally, if you fail to put the money back into a qualified retirement account within 60 days of making the withdrawal, the full withdrawal amount will be added to your annual total income, raising your taxes – sometimes substantially.

5. Will I owe taxes on my rollover?

Although it is always wise to consult a qualified tax professional when discussing tax payments, the general answer is “no”. If you make a direct rollover and never take delivery of the money yourself then there is no taxable income involved.

6. Do I need to report a rollover on my tax return?

Yes. IRS Form 1099R will show that you took a distribution from your inactive 401k and IRS 5498 will help you report that you made a rollover contribution to a self-directed IRA. The two forms will allow the IRS to see that the funds removed were balanced out by an IRA contribution of an equal amount.

7. Can I combine my rollover and annual contributions in one IRA?

You are allowed to put your rollover money and your annual contribution into the same Rollover IRA, with one caveat: funds in Traditional IRAs must be kept separate from Roth IRA funds, since Roth IRA money is pre-taxed.

8. Can I roll my old 401k plan over to a Roth IRA?

Yes. Some companies offer Roth 401k plans so the transfer to a Roth IRA is incredibly simple. If your 401k is not pre-taxed, you can convert the funds to a Roth IRA by paying the taxes on the account’s current value.

9. What if I inherited a 401k?

Since 2007 the IRS has allowed non-spouse beneficiaries to roll over a portion of the entirety of inactive employee plans to new inherited IRA plans. Now that non-spouse beneficiaries no longer have to remain confined to the rules of the original employer-sponsored plan, there is a greater potential for growth, thus benefiting the domestic partner, child, other family member, or friend who inherits the 401k.

The Choice is Yours

Sadly, it is all too apparent that we can no longer depend on the institutions in which we have entrusted our future for so long. We have a choice, however: ride with the status quo or proactively take back control. Rolling over a 401k into a self-directed IRA allows you to take the latter course. You are free to seek advice from anyone you choose, but you alone have the final say on how to put your hard-earned dollars to work building a future for you and your family.