How to Roll Over a 401k into an IRA

There are many reasons why you might want to consider a 401k to IRA rollover for your retirement nest egg. In some cases, 401k plans might offer under-performing funds, and you could do better by opening your own account where you have more control over your risk and return. You may also be forced into a 401k to IRA rollover if you lose your job or change jobs and need to find another vehicle for your retirement account.

When the time comes, it is important to understand the rules of retirement account rollovers so you don’t end up paying additional taxes or fees in the process. We have a step-by-step guide to help you complete your 401k to IRA rollovers with ease.

Choosing an IRA

Before you can complete any retirement account rollovers from your 401k plans, you must have an IRA open. Choosing an IRA is different from selecting between 401k plans, as you have a myriad of more options.

Find an IRA provider with reasonable fees and beneficial terms so you continue to make a good return on your investment after your 401k to IRA rollover is complete. Read the IRA literature from the bank or broker carefully so you know exactly how your retirement account will operate.

Get Rollover Paperwork

The receiving institution typically initiates a 401k to IRA rollover, which means the bank where you open your IRA will send the rollover request to your 401k plan. If you have your 401k plan issue a check directly to you, they are required by law to withhold 20 percent of your withdrawal amount for taxes. If you don't make up that 20 percent within 60 days of your withdrawal, you will also have to pay an early withdrawal penalty to Uncle Sam if you are under the age of 55.

Authorize the Rollover with Your 401k Plan

In most cases, you will also be required to complete paperwork through your employer to authorize the withdrawal of funds from your 401k plan. Be sure that your employer completes the 401k to IRA rollover as a direct trustee transfer to avoid the 20 percent withholding. This means the funds should be sent directly to the receiving institution, which will notify you once the funds are received.

Retirement account rollovers need to be completed within 60 days, so follow up with your receiving institution to make sure they receive the funds in a timely manner.

Completing 401k to IRA rollovers is not a terribly complex process, but it does need to be done in a particular manner to avoid tax and early withdrawal penalties. The most important rule to remember is to initiate retirement account rollovers of any kind with the institution that will be receiving the funds, and make sure money is exchanged directly between the fund managers. This process allows you to transfer retirement funds between 401k plans and other types of accounts as needed to keep your investments up do date and as profitable as possible.
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...
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