Q.

What is a 401(k) rollover?

A.

A 401(k) rollover is a transfer of your 401(k) savings to another retirement account. You are “rolling over” your money without taking any out, so that you can continue to enjoy the benefits of tax-deferred retirement savings. Which type of rollover is for you? We’ll help you figure it out.


When you leave a job, there are two main types of 401(k) rollovers you can do:

Rollover to an IRA. You can rollover your 401(k) to an IRA (Individual Retirement Account) at the financial institution of your choice. This gives you access to many more investment options, including individual stocks, real estate investments and commodities. You’ll have more flexibility to manage your investments over time and maximize your returns. Always make sure you understand the annual fees you will be charged for your Rollover IRA.

Ask your Plan Provider to do a direct rollover, where they transfer your funds directly into the IRA account. You will need to fill out forms. Otherwise, if they give the money directly to you, they will withhold 20% for taxes. You have 60 days to put that money into an IRA, but you will also have to deposit the 20% that was withheld—a complication that’s best to avoid.

Rollover to your new employer’s 401(k) plan. This can be a good option if your new employer’s plan accepts transfers, and if you are happy with the new plan’s investment choices and the fees are reasonable. Having one 401(k) plan makes it easier to track the performance of your investments over time and to make changes.

Initiate the rollover with your new Plan Provider, and have your old administrator send the funds directly to the new plan. You may need to wait a period of time in the new job until you can make the transfer.

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