How To Rollover 401k Funds into Your IRA

A 401k savings plan lets an employee save for his or her retirement. This works by allowing the individual to have the savings invested while putting off present income taxes on money and revenue saved until its future withdrawal. The 401k retirement plan is mainly sponsored by the employer. A designated portion of the employee’s wages go directly to his or her 401k account, which is managed by the company being worked for. If you ever leave your job, don’t feel confident about your company managing your savings plan, or if you feel that you can do a better job of managing the money yourself, you have two choices: cash the plan out or roll the money over into an Individual Retirement Account. Of the two, the latter is the better choice because it lets you keep your current investments intact. Additionally, you gain total control over how you invest you money.

  • Consider your options carefully. The simplest way of moving money from your 410k to an IRA is via direct rollover. This means that all the money you take out from the initial savings plan shall be deposited completely to the IRA that you will set up by your employer. By doing so, you will avoid any taxes or penalties that would be applied when cashing out a retirement plan before the age of 59 ½. Should you have immediate needs to access these funds, you may opt to select an indirect rollover. With this kind of transfer, the employer writes you a distribution check which you may or may not deposit into your account. You will have 60 days to move this into your IRA or else, the amount shall then be subject to 20% withholding tax. It is important to consult your plan administrator about any other limitations to your choices.
  • Scout for an IRA custodian. Find the financial institution that will best suit your needs. Determine their investing style and whether it complements your brokerage requirements. Inquire about the amount of initial investment that the firm requires. Some brokerage firms also charge fees and commissions. Make sure you know how much you will need to invest before signing on with an IRA custodian.
  • Submit your IRA paperwork. Go to your current 401k retirement savings plan provider and secure a form for making a rollover. Get an IRA application form as well. Make sure that you fill up both forms correctly then bring it to your IRA custodian. When the IRA application has been approved, the back office shall take charge of the rest of the financial transactions.

Typically, brokerage firms will let you select which funds to invest in prior to the transfer of money from your 401k savings plan trustee to the IRA custodian that you chose. However, several IRA custodians could elect to deposit your money in a high-yielding savings account during the transfer process. Once the rollover is complete, you will then need to apportion your investment based on your needs and risk tolerance. If possible, consult with a financial planner before finalizing any fiscal decision.


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