Rollover: How to Move Money from 401k to an IRA

Access to a 401(k) plan is a great benefit offered by most employers. The funds you place into this account are often times matched by the employer and once deposited into the account, they are yours to keep after the vesting period. When you change employers, it is very important that you take care of those funds as well. You don’t want to leave any money behind. Rolling over your old 401(k) is a straightforward process if you are attentive to the steps involved.


How to Roll Over Your 401k

Here are 4 steps to rolling over your old 401(k):

1. Identify your retirement account options and make an educated decision.

You have two choices when rolling over your 401(k).

  1. You can roll it into your new employer’s 401(k) plan or
  2. You can roll it into a new IRA.

There are benefits to both of these options. If your old 401(k) has a small amount of money, it may be in your best interest to roll it into a new employer managed 401(k) plan. With a larger amount of money, rolling into an IRA is a wiser option because it allows for more diversification of your funds.

If you have decided to roll you 401(k) into a non-employer fund, you will need to choose who to invest your money with. Now is the time to research brokerage firms and mutual fund companies.

Regardless of which option you choose, be sure you have educated yourself completely.

2. Contact the provider of your old 401(k).

Once you’ve made the decision of where your money will go it is time to contact the previous provider of the old 401(k).

  • Verify with them that there are no limitations on your ability to rollover the funds.
  • Verify that they know you are leaving the company.
  • Request the forms you will need to begin the process.
  • Ask about the information they will need from your new plan.

3. Check with your new provider to verify your next step.

Whether you have decided to roll into your new employer’s 401(k) plan, roll into a brokerage firm IRA or into a mutual fund IRA, you need to know what specific steps the new account provider needs you to take. Contact your new provider, let them know of your plan to rollover your funds and then verify the steps that you need to complete the process. The process will likely be similar regardless of which account you choose, but verify the proper steps before moving forward.

Typically, what you have have to do on this end includes:

  • Set up the account and make sure it is ready to receive the fund from your old plan.
  • Get all the new plan information you need to include in the transfer application.

4. Be thorough and be diligent with all forms.

Once you have the forms you need, be sure to fill them out completely and correctly. Be sure the form says that the funds are being rolled directly into a new account. You do not want to withdraw the funds in your name and then re-deposit them on your own. If you do this, your old plan administrator will withhold 20% of your money for tax purpose. You will also have 60 days to deposit the money into a qualified account. A failure to re-deposit the full amount (yes, you have to add the 20% out of your pocket) will result in taxes and penalties.

It is much easier to have the old provider transfer the funds to yor new provider. This is called a trustee-to-trustee transfer.

Copy all forms to keep for your records and either fax or mail them to your new provider. If mailing them, delivery confirmation may be something you want to pay for at the post office. This way you know when the forms have arrived.

Follow-up within the time frame that the new provider has given you. If they say it will be completed within 14 business days, then check in with them on the 14th day for a status update. You will want to make sure that all funds have reached their new destination. Remain diligent until the old account is closed and all funds have appeared in the new account. Be sure to keep tabs on your old 401k’s account balance during the process as well.

Congratulations! You have made wise decisions for your future. Continue depositing money into your new 401(k) or IRA with every paycheck. Make sure your money is invested and diversified. A diversified portfolio is an excellent way to ensure a solid financial future.

Photo by msburrows.

About the Author

By , on May 23, 2013
Kevin Mulligan
Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He's building a personal finance freelance writing career and has written for, Discover Bank, and many others.

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{One Comment}

  1. Trustee-to-trustee has worked quite well in the past–I agree. Great information here.

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