How Do I Rollover My 401k To Another Employer

Roll Over The Money Into An Ira

A rollover IRA is an IRA that allows you to transfer funds from your former employer-sponsored retirement plan into the account. You may establish the IRA with us, or another financial institution.

The main advantage of converting your 401 into an IRA is that you may have increased investment alternatives and, in some instances, lower expenses. If you do a 401-to-IRS transfer, the cash from your old 401 must be deposited into the new IRA account within 60 days.

If you are over age 72 when your traditional IRA reaches its minimum distribution age. Then, you will be required to take annual required minimum distributions from the account .

How To Roll A 401 Into An Ira

Here’s how to start and finish a 401 to IRA rollover in three steps.

1. Choose which type of IRA account to open

An IRA may offer you more investment options and lower fees than your old 401 had.

2. Open your new IRA account

You generally have two options for where to get an IRA: a robo-advisor or an online broker.

• If you’re not interested in picking individual investments, a robo-advisor might be a good option. Robo-advisors build personalized portfolios using low-cost funds based on your preferences, then rebalance those funds over time to help you stay on track, usually for a much lower fee than a conventional investment manager.

• If you want to build and manage your own investment portfolio, an online broker lets you buy and sell investments yourself. Look for a provider that charges no account fees, offers a wide selection of low-cost investments, and has a reputation for good customer service.

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3. Ask your 401 plan for a direct rollover

Here are the basic instructions for a direct rollover:

Decide Between A Traditional Or Roth Ira

The type of IRA you roll your old 401 money into will depend on what kind of 401 youre transferring the money from.

In most cases, if you have a traditional 401, youll probably want to roll the money into a traditional IRA. That way, you wont have to pay any taxes on the transfer .

If you had a Roth 401, thats a different story. You could roll the money you contributed into a Roth IRA completely tax-free and continue to enjoy tax-free growth and tax-free withdrawals in retirement. But your employers contributions are treated like traditional 401 contributions . . . so that money needs to either be rolled over into a traditional IRA or you can pay the taxes to roll them into a Roth account.

Easy, right? Traditional to traditional, tax-free today. Roth to Roth, mostly tax-free today and tax-free in retirement.

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How Much Of Your 401 Do You Get When You Leave An Employer

You are entitled to 100 percent of any contributions youve made into the 401 plan, but how much of an employer match youre entitled to is based on how the plan is set up and the vesting period. A vesting schedule is based on the length of time required to have ownership in the employers contributions. If you are 100 percent vested in employer contributions, you will receive all of the money the company has contributed on your behalf.

If you have not been with the company for the required amount of time, you may receive a percentage of employer contributions, based on the plans vesting schedule. The rest of the money set aside for you is forfeited back to the company. Most 401 providers delineate how much of your balance is fully vested. If youre not sure, you can always call to inquire.

Pros And Cons: 401 Vs Ira

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S To Roll Over Your 401

Before you can roll over your 401, youll need to open an account to roll it into. Consider your options, like your new employers 401 or an IRA.

Tax Consequences Of A 401 Rollover

If you handle it correctly, there are basically no tax consequences that come with a 401 rollover. More specifically, if you complete a direct rollover, your assets seamlessly move from one account to the other without any intervention from the IRS. The rollover doesnt show up on your tax return, nor does the IRS levy any taxes.

Conversely, the 60-day rollover faces a few tax implications. The reason for this is despite the fact that the money will pass through your control only momentarily, the IRS views it as a potential distribution. And because the IRS offers major tax benefits with retirement accounts, its extremely wary of when someone makes a withdrawal, especially a large one.

To cover itself, the IRS orders employers who you take a distribution from to withhold 20%. That can be a massive amount, especially if you have a large 401 balance. Its unfortunately up to you as the account holder to make up that difference before the 60-day period ends, otherwise youll lose the tax-deferred status for that money. Beyond that, if youre making the distribution before age 59.5, the IRS will hit you with a 10% early withdrawal penalty.

In todays day and age, theres virtually no reason a 401 plan provider wouldnt have the technical capabilities to transfer your rollover funds for you. But if the 60-day rollover is unavoidable, simply ask to have the check sent to you in the name of your new accounts custodian.

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Request A Direct Transfer Rollover From Your Old 401

Remember, you need to ask for a direct transfer rollover from the plan administrator of your old 401this could be your old employer or a third party. Theyll give you a form to fill out that will usually ask you to provide your contact information and account information for the plan youre transferring money from and the account youre transferring the money to.

Option : Move The Money To Your New Employer’s 401 Plan

Moving money to your new employers 401 may be an option, depending on whether your current employer has a 401 plan and the terms of the plan. Like your former employer’s plan, many factors ultimately depend on the terms of your plan, but you should keep the following mind:

• Ability to add money: You’ll generally be able to add money to your new employer’s plan as long as you meet the plan’s requirements. This option also allows you to consolidate your retirement accounts, which may make it easier to monitor your investments and simplify your account information at tax time.
• Investment choices: 401 plans typically have a more limited number of investment options compared to an IRA, but they may include investments you can’t get through an IRA.
• Available services: Some plans may offer educational materials, planning tools, telephone help lines and workshops. Your plan may or may not provide access to a financial advisor.
• Fees and expenses: 401 fees and expenses often include administrative fees, investment-related expenses and distribution fees. These fees and expenses may be lower than the fees and expenses of an IRA.
• Penalty-free distributions: Generally, you can take money from your plan without tax penalties at age 55, if you leave your employer in the calendar year you turn 55 or older.
• Required minimum distributions: Generally, you must take minimum distributions from your plan beginning at age 72, unless you are still working at the company.

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How To Roll Over A 401 To A New Employer

• Keeping Money in Your Old 401

Changing jobs can happen many times in the span of a career. Moving from one role or company to the next is always an adjustment, and it can be easy to put off figuring out what to do with the money in your former 401. A common choice is to roll over a 401 to a new employer, meaning transfer your savings from one employer-sponsored retirement account to another, so you don’t owe taxes on the money in the account. When it comes to finding the best place for your 401 savings, you have a few options to consider.

Get Help With Your 401 Rollover

Having an investment professional in your corner, someone who can help you find the right investments to add to your portfolio and walk you through all the ins and outs of a 401 rollover, makes this process a lot easier.

Dont have an investment professional? No worries! Our SmartVestor program can get you in touch with someone in your area to help you get started.

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What’s The Difference Between A Rollover And An Asset Transfer

The main difference between a rollover and an asset transfer is where the money is held before it’s moved to Vanguard. If you’re moving money to Vanguard from:

• An employer-sponsored plan, such as a 401 or 403, you can initiate a rollovertypically, when you change jobs or retire. When you roll over retirement plan assets, you’re moving them from a group plan into an IRA .
• An IRA at another financial institution, you can initiate an asset transfer, tax-free. You can also transfer securities held in a brokerage IRA at another financial institution into a Vanguard Brokerage IRA.

Rolling Over To A New 401

The first step in transferring an old 401 to a new employer’s qualified retirement plan is to speak with the new plan sponsor, custodian, or human resources manager who assists employees with enrolling in the 401 plan. Because not every employer-sponsored plan accepts transfers from an outside 401, it is imperative for a new employee to ask if the option is available from the new employer. If the plan does not accept 401 transfers, the employee needs to select one of the three other options for the 401 account balance.

If the new employer plan accepts 401 transfers from other companies, there is often a substantial amount of paperwork that must be completed by the employee. The paperwork is provided by the new plan sponsor or human resources contact and requires the name, date of birth, address, Social Security number, and other employee identifying information.

In addition, the 401 transfer form must provide details of the old employer plan, including total amount to be transferred, investment selections held in the account, date contributions started and stopped, and contribution type, such as pre-tax or Roth. A new plan sponsor may also require an employee to establish new investment instructions for the account being transferred on the form. Once the transfer form is complete, it can be returned to the plan sponsor for processing.

A transfer from one 401 to another is a tax-free transaction, and no early withdrawal penalties are assessed.

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Advantages Of Rolling Over Your 401

1. You can consolidate your 401 accounts

Especially if you change jobs often, you might find yourself with many 401 accounts scattered around. The more accounts you have, the harder it may be to actively make decisions. By having your retirement funds all in one place, you may be able to manage them more carefully.

2. Youll have more investment choices in an IRA

With your 401, you are restricted to the investment and account options that are offered in that plan. An IRA can give you a more diverse option of items to invest in. In an IRA you may be able to invest in individual stocks, bonds or other vehicles that may not be available in your 401.

You cant add to the 401 at your previous employer. But if you roll this money over into a traditional IRA, you can add to that traditional IRA over time, up to the annual maximum. Youll have to follow the IRA contribution guidelines.

3. Youll have the choice to bring the account anywhere youd like

With an IRA, you can take your money with you to any advisor, if you already have a financial advisor or financial planner that you work with, for example. Or maybe you already have a brokerage where some of your money is being managed, and you want all your funds there.

Make The Best Decision For You

When it comes to deciding what to do with an old 401, there may be factors that could be unique to your situation. That means the best choice will be different for everyone. One thing to remember is that the rules among retirement plans vary so it’s important to find out the rules your former employer has as well as the rules at your new employer.

Do also compare the fees and expenses associated with the accounts you’re considering. If you find it confusing or overwhelming, speak with a financial professional to help with the decision.

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Option : Cashing Out Your 401

While withdrawing your money is an option, in most circumstances, it means those funds will not be there when you need them in retirement. In addition, cashing out your 401 generally means you’ll have to pay taxes on the withdrawal, and there’s typically an additional 10% tax penalty if you’re younger than 59½, unless you left your employer in the calendar year you turned 55 or older.

Net unrealized appreciation: special considerations for employer stockIf you own stock in your former employer and that stock has increased in value from your original investment, you may be able to receive special tax treatment on these securities. This is referred to as net unrealized appreciation . If you roll the employer stock into a traditional or Roth IRA or move it to your new employers plan, the ability to use the NUA strategy is lost. NUA rules are complex. If you’re considering NUA, we suggest consulting with a tax professional prior to making any decisions on distributions from your existing plan.

Should I roll over my 401?The decision about whether to roll over your 401 is dependent on your individual situation. A financial advisor will work with you to help identify your goals and determine what’s important to you. By understanding your investment personality, he or she will be able to advise if rolling over your 401 is the best option for you.

Follow These 3 Easy Steps

Step 1Select an eligible Vanguard IRA for your rollover*

• If you’re rolling over pre-tax assets, you’ll need a rollover IRA or a traditional IRA.
• If you’re rolling over Roth assets, you’ll need a Roth IRA.
• If you’re rolling over both types of assets, you’ll need two separate IRAs.

Note: You can roll over your assets to a new or an existing Vanguard account.

Step 2Contact the financial institution holding your employer plan

Tell them you want to make a direct rollover from your employer plan to your Vanguard IRA®, and ask what information they need

Need a letter of acceptance?

You’ll be able to create and print a letter of acceptance during our online rollover process.

Note: You may not be eligible to roll over a plan account that you’re still contributing to.

What types of assets do I have in my employer plan account?

Knowing whether you have pre-tax or Roth assets will help you figure out what type of IRA you need to open at Vanguard. If you own company stock in your plan, that may add a layer of complexity to your rollover.

What name did I use on my employer plan account?

A common situation that can delay a rollover is when a check from the current financial institution is made payable to a name that doesn’t match your Vanguard account registration. Examples include use of birth name versus married name, a missing suffix , differing middle initials , etc.

What are your rollover requirements?

Are e-signatures or faxed copies allowed?

Do you need a letter of acceptance ?

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