How To Roll Over A 401(k) To An IRA

When you leave a job, it’s important to make sure the cash you stashed in your 401(k) follows along. Some are tempted to cash out the account and suffer the penalty, but the savvy choice is to roll it over into a new account.

Smart On Money tells you how to move your 401(k) into an IRA. The option makes sense if you haven’t started working at a new place that offers a 401(k), and provides flexibility while you plot out your next move.

To roll your account into an IRA, first you’ll need to open the account, then check with your old company’s HR department to see if there are any restrictions on the funds. Your new IRA provider should be able to hook you up with transfer paperwork. After you complete the process, it’s a good idea to verify that your dollars all made the trip without leaving any of their brothers behind.

How To Do A 401k To IRA Rollover [Smart On Money]

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  1. brinkman says:

    Step 1. Call Vanguard Concierge Services: 1-800-841-7999

    • MaytagRepairman says:

      Yes, Vanguard is the credit union of mutual fund companies.

      Whatever you do, roll it into an IRA. Don’t roll it to your next employer’s 401k. The employer’s I’ve worked for tended to have weak performing investment options.

    • moneymatters says:

      Agreed. Vanguard is one of your best options..

  2. George4478 says:

    Wife and I’ve done this three times over the years; all three into accounts at Schwab. We had no problems with the Schwab side or the company’s HR side.

    One good side effect was that we got some stock-trading benefits/fee reductions in our investment account since our combined account value was suddenly above a certain dollar value. None of them individually qualified, but slapping a combined 30 years of 401k contributions into IRAs added a hefty balance.

    • DoodlestheGreat says:

      I had a similar benefit. Because my IRA from a 401K rollover is at my bank, its size means I qualify for free checking.

  3. McDoctor says:

    This is not necessarily good advice if your AGI is greater than the limit for Roth contributions. There is a loophole that allows you to make non-deductible contributions to a traditional IRA, and then roll them over into a Roth, even if your AGI is grater than that for Roth contributions. However, when you rollover, it treats all IRAs as if they are a single IRA. 401ks, however, are not counted in that total. Google “Backdoor IRA” and “Pro-rata rule” for more information.

    • JoeTaxpayer says:

      McDoctor – You are absolutely right. The 401(k) >> IRA is not a “no brainer”. For the issue you cite – the inability to deposit/convert – one needs to look at the difference in fees in their 401(k) compared to the IRA investments. Say my 401(k) fees are 1%, but I’d buy a sub – 0.1% investment in the IRA. If the 401(k) had $100K, I’d save $900/yr by moving it. Would I rather have that $900/yr every year or he ability to ‘deposit’ to the Roth each year?

      The point to make shouldn’t be ignored, but the answer is unique to a given person’s overall situation. It’s just a great thing to keep in mind. Too bad for the guy who leaves a decent 401(k) (mine has an S&P fund at .05%/yr fee) and then realizes he can no longer deposit/convert tax free.

  4. and_another_thing says:

    When I moved my rollover IRA from Fidelity to Vanguard to escape Fidelity’s high expense ratio, Fidelity dinged me for another $50 per account for the privilege of escaping.

    And my new 401(k) is through Fidelity.

    Joy.

    • ajaxd says:

      You should be able to pick whatever funds you want. Expense ratio has nothing to do with Fidelity but with specific funds you pick. The same funds are typically available though either Fidelity or Vanguard.

      • brinkman says:

        The expense ratio has everything to do with the company because it reflects their cost of running the fund and the higher the ratio, the less you’re left with. While you can find similar funds between two companies, Vanguard’s expense ratios are usually lower than the ratios from other companies.

        One example is an index fund that follows the S&P 500. These three funds are ostensibly designed to track the same index but the Vanguard fund is the least expensive:
        Vanguard 500 Index Fund (Admiral Shares): 0.06%
        Fidelity Spartan 100 Index Fund: 0.10%
        Blackrock S&P 500 Index Fund: 0.56%

        The difference is even larger for actively managed funds.

    • tralfaz says:

      “When I moved my rollover IRA from Fidelity to Vanguard to escape Fidelity’s high expense ratio, Fidelity dinged me for another $50 per account for the privilege of escaping.”

      Otherwise known as “closing costs” – which were legally disclosed to you when you opened the account.

  5. areaman says:

    ***Your new IRA provider should be able to hook you up with transfer paperwork.***

    Although this is a true statement, it does not lead to being able to do a rollover.

    When doing a rollover from a 401k, 403b, etc, ask for PLAN for the paperwork and not the people you are opening the IRA with.

    Also, I know if you have a 401k at Fidelity, they do rollovers without any paperwork (if your employer has the plan setup that way).

    To sum up. DO NOT get paperwork from the people you open the IRA with.

    • George4478 says:

      There are 2 ways to look at it. Your 401k provider can “push” your money over to the IRA provider. Or, your IRA provider can “pull” the money from the 401k provider. You use the documents from whichever of the providers you want to deal with.

      I used the “pull” method where the Schwab IRA went and got the money from the 401ks (Cigna, Cigna, and Fidelity). All of the forms I signed were Schwab forms, authorizing them to close down the 401k and transfer the monies.

      This is the method that you tell people not to do, for some unspecified reason. There is no blanket reason not to do it this way and I’ve done this three times over the years without any problems. It is a normal part of business for IRA providers.

      • areaman says:

        I just mentioned:

        Also, I know if you have a 401k at Fidelity, they do rollovers without any paperwork (if your employer has the plan setup that way).

        I did a T Rowe Price rollover with no paperwork. Why mess with paperwork that may or may not get me anywhere?

        There’s too many 401ks that don’t need any paperwork and that will only work with their paperwork.

        Examples of companies that will only work off their paperwork:

        American General Life
        AXA
        Nationwide
        MassMutual
        Thrivent
        TIAA CREF
        Valic

  6. areaman says:

    The Smart On Money article has it right:

    Get the forms your old 401(k) provider: First confirm that you don’t have any restrictions on rolling funds over, and then request the forms that you’ll need in order to get the ball rolling. When talking to your contacts, make sure to ask what information exactly that you’ll need from your new IRA in order to do the transfer.

  7. savvy9999 says:

    question for legal (financial) eagles: my current employer’s plan states (paraphrasing here), that I can never move my money out of its 401k plan, unless it’s part of a usual disbursement, even if I don’t work there any more. Is that really enforceable? I can’t roll it out, and my money is stuck there until I’m 55 or die or become disabled?

    • Not Given says:

      59 ¬Ω

    • brinkman says:

      That doesn’t make any sense. If you no longer work there, you should be able to roll it into your new employer’s 401(k) or into an IRA. If you’re willing to pay tax and penalty, you can take an early distribution whenever you want.

      It sounds like you’re getting bad information from your company. When it comes time to move your money, let your new employer/investment company deal with your old company.

  8. dilbert69 says:

    Why not just leave it where it is?

    • KenZ33 says:

      Well, your former employer can start charging you or reporting their account expense as taxable income for you.

    • Hoss says:

      If you can leave it in your former employer’s plan DO IT! You can’t take a loan from an IRA account but can with a 401k. But chances are your 401k plan will kick you out after leaving.

    • Sarek says:

      Well, it depends on how much you like your old employer’s 401k. I left my first one with the employer, but rolled over the one from my subsequent employer.

      Look at http://www.brightscope.com/ to see how your employer’s 401k rates. If it’s a high rating, consider keeping it there. Otherwise run for your life!

  9. Tank Fuzzbutt says:

    I rolled mine into a brokerage IRA. So far I’m doing tremendously well on my return but it’s a bit scary to know I’m the one in control of all the investing so I only have myself to blame if it tanks.
    I didn’t realize taking such an active role in my retirement savings was so scary.

  10. HogwartsProfessor says:

    I had no rollover option because it was under a certain amount so I had to take the payout. This only happened because my original plan to save money this year and set all that up before I (voluntarily) left my job got scuttled by an unexpected layoff.

    I only had one because they forced it on us. At this late date, I won’t be retiring so it’s useless and I never make enough money to put anything significant in there. Every single time I have tried to do a 401K this happens. It’s almost like it’s bad luck or something.

  11. Raider Duck says:

    If you have to do an Indirect Rollover, ask them to NOT WITHHOLD the taxes. Then you can just endorse the check and send it on to your new place. If they withhold anything, then you’ll have to make it up to avoid much pummeling from our friends at the IRS.

  12. videoman says:

    I always wonder what will happen to the 401K after I’m laid off and in my homeless retirement.

  13. Snip says:

    You need to be careful to set up the IRA so that it is still getting some investment money to keep the account from losing money. Because if you don’t it will lose money, to the Rollover company’s maintenance fees. If you’ve got more going out for those fees than coming in making interest, you will watch that IRA slowly dwindle away.

  14. yankinwaoz says:

    I would like to point out a danger of converting a 401K to an IRA. In some states, an IRA can be garnished, or part of it can. For example, in Texas creditors can’t touch your IRA. In Ohio, they can take all of it. In Calif., they can only take what is computed to be “excessive”.

    However, a 401K can not be garnished. Can not have a lien placed on it.

    If you are looking at some bleak economic times and expect to be sued by creditors, and you live in a state that allows IRA garnishments, then wait.

  15. Paul @ The Frugal Toad says:

    Sometimes the best option is to keep your 401k with your employer. Check expense ratios and account fees before making any transfer.

  16. BurtReynolds says:

    Then hope the firm who held your 401 doesn’t screw up your 1099-R. I had to move the 401 money from my first job since it was slightly under $5k. I think taxes today are unsustainably low, so I wanted it to go to a Roth at Vanguard. I get my 1099 from ING and it says my taxable amount is “.00″.

    All of the contributions were pre-tax, so I knew that wasn’t right. Then I got to spend two weeks trying to figure out whose fault it is, and several phone calls to ING where the representative didn’t understand what I was trying to solve. Calls to Vanguard where they wouldn’t touch the question since it was a “tax issue” and I should contact my “tax advisor” (all I wanted to know is if ING could see that I rolled it into a Roth). After almost hiring a CPA just to solve this problem (since everywhere I turned didn’t seem to offer a solution), I called ING again and once again explained my issue. After an initial rush past the question at hand again, something finally clicked with this representative and she agreed my 1099-R was incorrect and said she would have a corrected one sent out. I finally filed my taxes yesterday. I hope everyone else’s rollover goes more smoothly.

    • brinkman says:

      I did the same last year and my Vanguard advisor had me to roll my 401(k) into a Vanguard IRA and then do a Roth conversion. The paperwork’s apparently a bit easier that way.

      • BurtReynolds says:

        I almost had them recharacterize it to a Trad. and then reconvert to a Roth just to get the paperwork squared away. Luckily someone at ING decided to do more than just explain to me rollover eligiblity.

        Even better, I originally tried to get that money rolled over in 2010 to spread out the taxes but the company that handles the 401(k) for my old employer took forever processing it and getting ING to send the money to Vanguard.