401k Rollover

A 401k rollover is a smart option to help you avoid penalties and losses associated with withdrawing funds if you’ve recently left or lost a job where you had a 401k plan.  Don’t endanger your retirement savings by leaving it behind.  Although these accounts are tied to your former employer, you are usually entitled to make the decision about the funds.

Retirement accounts, such as a 401k, are funded with pre-tax dollars which makes their growth tax-deferred. A 401k rollover allows you to transfer your existing retirement savings into another similar account without subjecting the account to withdrawal penalties or unnecessary taxes.  Simply withdrawing the funds subjects you to taxes on the money, and the IRS can also apply a 10% penalty if you make the withdrawal before the age of 59½.  Many people are penalized in this situation because they don’t understand the simplicity of using a rollover.

Step by Step: Your 401k Rollover

Don’t be intimidated by the rollover process.  Step-by-step, it’s very simple and straightforward.  You will be doing yourself and your savings a favor by utilizing a 401k rollover and preserving the safety of your investment capital.  The forms may initially look complicated, but slowly and steadily you will easily complete them.

1. Determine Rollover Eligibility with Your Old 401k Provider

The initial step is to check in with your old provider, making sure you a categorized as a terminated employee, and determining that there won’t be any unexpected fees involved in your 401k rollover.  Your former employer must notify this provider of your terminated status, as they cannot release the funds otherwise. You’ll save time and worry by making the initial contact and confirming your status so that you are cleared to move the money without restrictions, penalties, fees or delays.

2. Obtain Rollover Forms From Your Old 401k Provider

While you are talking to the old provider to determine your eligibility to move your 401k, it’s also time to request the required forms.  Tell the provider you intend to roll the money over and ask for the forms to do so.  Some providers will mail the forms, others may provide them for you via email or fax.  You must always submit paper forms to initiate your rollover, so getting them from the old provider in a timely fashion is important.  There are some providers that require a rollover request form only from the new plan: if this is your situation, you can skip this step and move on to step 3.

3. Find Out What the New 401k Provider Needs

You have already selected your new provider, so now is the time to find out what they need in order to accept your 401k rollover. The process will be similar, whether you are moving to a mutual fund company or a new 401k brokerage account.  If you are required to open an account with the firm prior to making the rollover, that process may be part of the same form.  Ask questions to be clear on the requirements, make sure you have the forms you need from the old and new providers so you can go to step 4.

4. Complete the Forms Properly

This step is important, so if you are doing it on your own take the time you need.  It’s vital to fill out your forms correctly. If the form from the old provider asks for the type of distribution, choose “Direct Rollover.” This designation allows the funds to be made payable to and directly deposited into your new account.  You may need additional information from the new provider on this step: be sure you know how to have the check made out or where to wire the money for a smooth transfer.

Any questions you have as you reach this point can be answered by your provider, and you shouldn’t hesitate to call them.  Small mistakes can delay the process or get the form kicked back to be redone, delaying your transfer.  In some cases, you might not even be informed of the delay.  Taking the time now to clear up any questions will save you problems and expedite the process.

5. Submitting the Forms and Follow-up

Your responsibility now goes beyond submitting the forms.  You must mail or fax forms to the appropriate location, for one or both providers.  Follow up to make sure the forms have been received.  Old providers are never happy to have the money transferred away, so they may make it difficult: if a form has an error or if they don’t receive it, they may not inform you.  You must check to be sure both parties have received the proper paperwork, and that the transfer is proceeding.  The funds should be transferred within two weeks, so check to make sure the process is being followed.  If there is a paperwork error, you can resubmit the form or provide the needed information via phone.  Be diligent in following up until the transfer has been successfully completed.

If you receive a check in the mail for the full 401k rollover amount, immediately make a deposit to your new account Check to be sure the check is properly made out, and submit it to the new provider with any required deposit form.  If you’ve been told the check was issued and mailed, be aware of the timing so you can have a stop issued on it and a new check sent if you don’t receive it in a reasonable amount of time.  Make the deposit to your new account as soon as you get the check, to avoid any problems and complete the process.  And again, follow up to confirm that the money is now in your new account.

401k Rollover versus IRA

As a side note, we always recommend that you review a variety of IRA custodians prior to beginning your 401k rollover.  Self Directed IRA Custodian companies (or “administrators”) are often the same companies that offer self-directed 401k’s, and sometimes rolling your old 401k over into a self-directed IRA is a better choice than establishing a new 401k.


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