Tax accounting 1040 US Tax Form, with calculator, pen and glasses
December 6, 2017
By Mary Beth Eastman

How to safely roll over a 401(k) into an IRA

Simple. Thrifty. Living.

Sometimes when you change jobs or a company you worked for chooses to end their retirement plan, you have the option to take the funds that have been accumulated in your 401(k) and perform what is referred to as an IRA rollover. Essentially, what this means is that you will be taking the money in your prior company’s retirement plan account and transferring it to a new account, either with a new company or with an investment firm.

While you also often have the option to cash out your IRA, you typically cannot do so without incurring large tax penalties for early withdrawal. So most people choose to do an IRA rollover. However, knowing how an IRA rollover works will help ensure that you make the best decision and avoid any possible tax problems.

If you are planning to do an IRA rollover with assets from one company to the retirement plan of a new company, you will need to acquire all the necessary paperwork from both companies and the financial institutions they utilize to handle the retirement accounts.

If you are simply going to rollover the assets into a new IRA at another financial institution, you should first take the time to research your options. It may help to speak with an investment advisor. Then you will need to set up an account with the new institution, and they will help you to complete all the paperwork for a successful and easy IRA rollover.

The process of an IRA rollover is generally a simple one. If you didn’t automatically receive paperwork from a company due to them canceling the retirement plan, you will need to request the documents from your employer’s plan. The paperwork will usually give you several options, and you need only select one. The options will include early withdrawal (with significant tax penalties), or a rollover into a new plan. You might also have the option to choose which specific investments you would like to transfer the funds to.

A direct rollover of assets into another IRA will suffer no tax penalties unless you convert some of all of the assets into certain types of plans or investments. So if you are unfamiliar with the different types of options available and how taxes might be affected, it would be wise to speak with a financial advisor before making a final selection on your IRA rollover.

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