How to Rollover a 401k

How do I rollover my 401k to an IRA?

There are three main ways to carry out a 401k rollover; cash distribution, indirect rollover, and direct rollover. You can choose one of these options when deciding to rollover your 401k plans. There are advantages and disadvantages associated with each, so it is up to you to decide  which plan is right for you.   If you need help with this process, you can contact us by phone or our quick form and a representative will help you through your decision.

401K Cash Distribution Method

Cash distribution is the most expensive and riskiest way of a 401k rollover. This method is not advised under regular conditions by the retirement plan advisors. In this option, you simply withdraw the money in your 401k plan.   Most people withdraw for family emergencies or even vacations.  Of course, what you do with your IRA is entirely up to you, but it would be more conservative and beneficial to keep your 401k funds.

If you select the above option, there are a few downfalls. First of all, 20% of the money that you rollover will be withheld by your employer for possible Federal and State taxes that can arise in the future. In addition to that, you will be fined 10% for premature withdrawal.  In total, you will lose 30% or more of your 401k plan, therefore most individuals would not want to select this option unless there is an emergency.

How an Indirect 401k Rollover Works

Indirect rollover is the next option available for you to rollover your 401k plan. In this method, your employer provides a check in your name and you deposit the 401k money you withdraw within 60 days into an IRA. If you are unable to do so at the end of 60 days, then you will fall into the expensive first category, ending up paying about 30% of the money you didn’t deposit in the IRA.

How to Transfer 401k Funds to an IRA

In the third method, your employer directly transfers 401k funds to your IRA, so you do not involve in the process at all. This is the best way of 401k rollover as this method does not cost you a cent. You simply move your money from one retirement account to another with no cost or taxes.

Get started with your 401k Rollover today by receiving a 401k Rollover Form Kit.