A 401(k) rollover is a distribution from a 401(k) plan that is transferred (rolled over) to an IRA or to another 401(k) plan. In some cases rollovers can be made to other retirement plans such as a 401(b) or 457 plans as well.
A direct rollover is one in which the 401(k) plan trustee sends the funds directly to the rollover institution.
An indirect rollover is one in which the 401(k) plan trustee sends the funds to the participant, who then has 60 days to deposit the funds with the rollover institution.
Almost all 401(k) plans will accept rollovers from other 401(k) plans, but many plans other than 401(k) plans will not accept them. You should ask the receiving plan's administrator first.
The benefit of the rollover is that it keeps the deferred tax status of the 401(k) money intact; no taxes are due when a rollover is completed.
There is no limit to the number of rollovers you can make. It is always preferable to make a direct rollover and avoid any possibility of taxes being due if a mistake on an indirect rollover occurs.
- Photo Credit Jupiterimages/liquidlibrary/Getty Images
Tax Benefit of Rollover Pension to IRA
If you've been stashing your retirement savings in your employer's retirement plan, you might be wondering about your options once you leave...
What Is Rollover in Futures?
Rollover is a necessary practice in the futures markets. Since futures contracts periodically expire, there is a need to transfer or “rollover”...
What Does IRA Mean?
An Individual Retirement Arrangement (IRA) provides a tax-advantaged way to save for retirement. Contributions to IRAs may be tax-deductible, grow tax-deferred and...
- What Does Vesting Mean?
The Best 401(k) Rollover
One of the advantages of a 401k plan, compared to a pension, is its portability. If you leave your employer before becoming...