How To Rollover Your 401k Plan? A Comprehensive Guide To 401k Rollover

Did you change your job recently? In that case, you have many adaptions to do regarding your finances. This also includes the employer-sponsored 401k plan. 

Now, how you handle your 401k plan decides a lot for you. Such as how much money you have left after a 401k withdrawal or how much penalty or income tax you must pay on your departure. Also, if you are considering a 401k rollover, how will you go about it?

You can make the right decision now and save thousands of dollars. Or you can try to withdraw your money and lose a considerable portion of your retirement investment. 

Also, rolling over your money involves different methods that can make or break the fortune you are building for your retirement. So, if you are considering 401 K rollover, I suggest going through this article. 

What Is A 401k Rollover?

A rollover generally means transferring your funds from an employer-sponsored plan into a Vanguard IRA or an employer-sponsored plan. This is common to different plans such as 401k or 403(b). 

A 401k rollover means the same. An investor, through a 401 K rollover transfers their funds from a 401(k) plan to the IRA or to a new 401k plan provided by a new employer. Employees have sixty days from the day when they get a retirement plan distribution to roll it over to the other plan or the other IRA. 401 K rollover can be an option after you leave your job. 

An investor can take two different approaches here –

1. They can roll over a 401 k with a high-fee investment into an IRA that provides a lower-cost investment option. 
2. Or they can roll over their 401k fund to a new employer’s 401k investment plan. 

Both ways, they can make significant savings and make the right use of their 401k funds. As per the data the Department of Labor shared, a mere 1% increase in the fees can decrease the retirement funds by 28%. So, if you are protective about your 401k investment funds, then make the right decisions right now.

A Step By Step Guide To Start 401k Rollover

When you are considering a 401 K rollover, you must know how to transfer your 401k funds to another 401 K plan of a new employee. But that is just the process, and it starts with choosing the right type of account you want to roll over your 401k funds to. Follow all the steps to have a clear understanding of the same. 

1. Decide The Type Of Account Best For You

You can move your 401k fund to a new 401k plan of another employer, or you can transfer it to an IRA. It is normal to feel indecisive at this stage. Many investors feel confused about whether they should go with an IRA and invest themselves or use the 401k plans of their current employer. In that case, ask these questions to yourself. 

1. Do you want to invest the fund yourself? Or are you ok with someone else doing it for you? An IRA is a good option if you want to invest yourself. There is also an option to use a robo-advisor to design an investor portfolio on your behalf. But you can also roll the fund to your new employer’s investment plan.
2. The next plan comes with a similar plan to your previous investment plan – another 401k plan. But this time with a new employer. What you should think now is – Is the new 401k plan better than the previous one? Does it have low-cost investment plans? 

Choose a 401k investment plan with your new employer only if it is better than the old employer. Because IRA investments almost have no boundaries regarding what you can invest in, choose mindfully.

3. Does the new 401k plan provide access to a financial planner? Your investment gets better with an investment planner working with you. On the other hand, if you are considering an IRA, you must pick up investments and do everything by yourself. If that is something you do not want, rollover your 401k funds into a 401k plan of the current employer. 

Once you clear all these doubts and decide the type of account you choose for 401k rollover, you are ready to find your old 401k accounts.

2. Decide Where To Put Your Money

If you are going with a 401k rollover to a new plan provided by the current employer, you know the location of your fund. But, if you want to transfer your 401k funds to an IRA, you must do some setups yourself. You must contact a brokerage or bank to set up your IRA. 

You can go through different banks and brokerages that offer IRA options for investors. But, if you already have an IRA, you can consolidate your IRA. But if you want, you can always create a new one. 

3. Open The Account And Conduct Rollover

Are you done setting up your IRA account? Or are you opting for a robo-advisor? Whichever the case is, you must start with the 401 rollover process and transfer your funds. 

Whether you are using a brokerage firm or a robo advisor, they all have their personalized processes. You must comply with their processes and connect with the institution if needed for your rollover. If it is the 401k investment fund of a new employer, you must contact the administrator of the new plan. 

In both cases, follow the instructions that the corresponding institutions have for rolling over your 401k plans to the funds provided by them. 

4. Start With The 401k Rollover Process

Now is the time for paperwork. You have gone through all the steps necessary for a 401K rollover, and now you must discuss the process with the service providers. You can go with one of many processes for your 401k rollover to a new fund. But, following the direct transfer method is still one of the best methods for you to roll over your 401k funds.

The benefit of direct transfer of your 401 K fund is that you do not have to touch your money to transfer it. It will get transferred directly to your new fund from the old 401k fund. However, ensure to specify that you opt for a direct transfer and not accept a check made payable to you. Because if you are withdrawing the fund before the eligible 401k withdrawal age, then you may end up paying a total of 20% in tax and penalty. 

Final Words

When conducting a rollover, you have 60 days from the date you get a retirement plan distribution to get it deposited to a new and qualified account. Otherwise, you might end up paying a heavy tax. 

Also, the institution can have its process for moving money from one place to another. Each institution has its different ways of dealing with the 401k rollover. It can be through a paper check to the provider where you want to roll over your money. Or it can be done digitally, and the money can be transferred through wire.

Whatever the case, you need to act quickly and take action when you have time.

Read Also:

• Pension vs 401k: Pros & Cons, Similarities & Differences
• The Tax Benefits Of Your 401(k) Plan: Is 401k Tax Deductible?
• Should I Max Out My 401k: When & When Not To Max Out Your 401K