How To Rollover Your 401k

Here are the steps necessary to "Rollover" from an employer plan such as a 401k, 403b, 457 or defined benefit pension plan.

• Request the distribution forms from your former employer.  They'll send out forms and also include a special tax notice the IRS provides.  The special tax notice 402(f) simply states that moving a 401k into a IRA is completely sheltered.  The form normally has a section to indicate a "direct rollover".   You'll sign the distribution forms and send back to the plan sponsor.   Your spouse may be required to sign the document too.  This spousal signature is common for 403b plans.

Some plans have automated this process and allow you to request a check by phone or at their website.

 

• Establish a Rollover or Traditional IRA.  Most IRA custodians will allow you to set up  a account and fund it at a later time.  It could take several weeks for your employer to release the money and fund the IRA account.

 

• The Roth is now eligible (January 2008) to receive assets from an employer plan-it is a taxable event .  Most financial planners suggest rolling to the Traditional IRA or Rollover IRA and converting to a Roth at a later time.
  

• Your employer will distribute the money either by sending the monies directly to the new IRA you've established (a direct rollover) or- they may send a check directly to you.  If the check is sent to you make sure its made payable to your IRA custodian (ask your custodian how the check should be made payable).

 

•  Please be aware if a check is made to you 20% of the distribution will be withheld for income taxes.  You'll have 60 days to roll these funds over to a IRA or employer plan to avoid taxes and penalties.  If you roll over only the 80% that was received, you will be taxed and possibly assessed a penalty on the 20% withheld for taxes.  If you replace the 20% withheld you'll avoid taxes and penalties.  A 401k rollover is a better option!