401K Rollover: What To Know?

February 7th, 2010

If you already have a 401k account, then you probably know the basics of how to manage the account, and when you’re permitted to withdraw the money without any penalty. However, you may want to learn a little more about 401k rollover to IRA.

Rollover happens when you close your 401k account, but move the money to another investment program instead of getting the cash. In most cases, the money is transferred to an IRA, or individual retirement account. When your funds are going to an IRA, you can facilitate the tax-free transition of your money without any penalties. But, there are several reasons why people consider a 401k rollover to IRA, so you’ll need to know why this decision will be best for your money.

You may want to think about a 401k rollover to IRA, as this will be a good financial decision if you are in the process of switching employers. Rollover may also be best if you have a new job offer given to you before you leave your old position. However, before you transfer any of your money, you should go over the rules and regulations of your new 401k in detail to make sure there are no restrictions that would stop the process.

If you’re leaving your current job, you’ll need to fill out an IRS 1099-R form, which will start the 401k rollover to IRA process. The distribution of your 401k funds will be completed within 60 days of the form completion. After this, you can open up your rollover IRA account with a brokerage or financial institution that you trust. The rollover IRA account should allow you to continue earning high interest on your retirement funds under tax-deferred conditions. When you visit the financial institution to open the account, you’ll have to fill out IRS form 5498 so that you can report the successful deposit of your 401k funds into your new IRA account.

Even after the 401k rollover to IRA process is complete, you should talk to your brokerage firm about the additional investment options that may be available to you as an IRA account holder. Remember that this account is only temporary while you establish your regular IRA account or Roth IRA account. A Roth account will provide you with fewer restrictions for investments.

If you need to take the money out of your 401k account before you place the funds in an IRA account, you can withdraw the money, but you will have to pay a penalty. The funds will also be subject to regular income taxes. For more information, be sure to visit sites like www.msnbc.com to get first-hand information on how to organize your finances.

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