The IRS allows you to move retirement money without tax or penalty as long as you play by the rules.
Review your financial and retirement planning goals, making sure that moving your 401k account is in your overall best interest.
Consult with a qualified tax advisor about your intended move to get a clear idea about your options and their potential tax consequences.
Thoroughly research new "locations" for your 401k money and choose investment options that are compatible with your risk tolerance and investment horizon.
Contact the service representative or asset manager where your new account will be and ask him to provide you with the IRS-required paperwork for accomplishing a "qualified transfer."
Choose your investment options, sign and date the paperwork, and return it for processing.
After the transfer or rollover is complete, check the performance of your new investments at least quarterly and make adjustments for optimal returns.
Tips & Warnings
- Let an investment professional or agency assist you with your rollover if you have any doubts about how to accomplish it.
- Mutual fund companies have service representatives that specialize in 401k rollovers and can do most of the work for you without your having to contact the provider of your 401k account.
- A new employer will be able to assist you in making the transfer of 401k money if that is your choice.
- If you "cash out" your 401k, you only have a brief window of time to deposit the money in a new, tax-qualified account - at present, 60 days.
- A penalty of 10% applies to any money from a 401k not deposited into a tax-qualified account within the allotted time frame if you are not at least 59 1/2 years old.
- Because your 401k money was originally invested before being taxed, withdrawals are taxed at your current income tax rate, unless redeposited as per IRS rules.
- Don't purchase a fixed-rate or variable annuity with your 401k money in the new account unless you want - and are willing to pay for - the life insurance an annuity provides.
- Unless you choose to roll the money over into a new 401k account, your new account will be an individual retirement account (IRA), so make sure you choose the right IRA for you.
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