How to Rollover a 401k

A 401k rollover occurs when you close a 401k account, but direct the money in it into another investment program rather than cashing it out. Specially designed retirement accounts, called rollover Individual Retirement Accounts (rollover IRAs) can facilitate the tax-free transition of your money from one long-term plan to another.

Difficulty: Moderate

Instructions

Things You'll Need:

• Rollover qualification(s)
• 401k account

1. Consider a rollover of your present 401k funds into a 401k account at your new job if you are switching employers and have a new job offer in hand before you leave your old position. Before you do, though, review the terms of your new 401k closely. There may be restrictions on it that would make it better for you to explore other options.

2. Fill out IRS Form 1099-R if you are terminating your present employment and want to roll your 401k money into an IRA. This will request a distribution of your 401k funds, which will generally be completed within 60 days of the date of the order.

3. Open a rollover IRA account with a brokerage or financial services institution where the 401k money can be deposited when the 60-day period elapses. A rollover IRA allows you to keep on earning high interest on your retirement savings under tax-deferred conditions.

4. Complete IRS Form 5498 in order to report the successful deposit of your 401k funds into your new rollover IRA.

5. Talk to your brokerage about the investing options that are available to you through your new rollover IRA account. Keep in mind that rollover accounts are intended to be temporary measures while you establish a regular IRA account or a Roth IRA (an IRA with fewer restrictions and more investment options) with the brokerage.

6. Remember that you can choose to terminate your 401k account and receive a distribution of the funds it contains if you're willing to pay the penalty and taxes on the money. Under federal law, any funds you take out of your 401k early are subject to regular income tax rates and an addition penalty equal to 10 percent of the distribution amount.

Tips & Warnings

• Set up a rollover IRA account with a brokerage that then permits you to place the money in a regular IRA or a Roth IRA. That way, you'll avoid the administrative hassle (and expense) of bouncing the money from institution to institution.
• The federal government limits the number of times you're allowed to roll your 401k funds over to once every 12 months.

[sundar77]

on 4/20/2009 A 401k rollover is moving your eligible retirement funds, such as money invested in plans like a 401k, 403b or 457. When you no longer work for an employer, you can choose to transfer or “rollover” your retirement plan into an IRA account. The process, “401k Rollover” is also known as “IRA Rollover”.