An Insight into 401k to IRA Rollover

By: Tom Jones MD


What is a 401k rollover to IRA?

It is the procedure of moving your retirement savings from your retirement plan at work i.e. 401K to an Individual Retirement Account (IRA). Rolling over to an IRA allows you to keep your savings tax-deferred and typically gives you a broader choice of investments. One of the best parts about rolling over your retirement plan into an IRA is that you are in full control of your retirement funds. You can change investment options within the IRA based on the investment products that your investment advisor offers. Choosing to roll the money over to an IRA is best option for those employees who are interested in building up a comfortable retirement fund, as it continues its tax-advantaged status and keep growing for retirement. An IRA allows the investor to consolidate all his IRA balances, making it easier for him to manage his investments. You can also take your money out of your IRA at any time, although you may be subjected to taxes and penalties.

An IRA rollover allows to

  • Preserve the tax-deferred status of your retirement savings.

  • Increase your investment options.

  • Move your money out of your former employer's retirement plan without tax or penalties.

  • Take control over your retirement plan.

  • Reduce the cost of administration.

How to rollover 401k funds to IRA?

401k to IRA rollover, is one of the smartest thing, one can do with the retirement plan. Follow these steps to rollover 401k funds in to IRA.
  • Open a rollover IRA account at the financial institute of your choice- Open a rollover IRA account at the financial institute (bank, brokerage firm, mutual fund company etc.) of your choice. The financial institution you choose will give you a form that authorizes a direct rollover once you open the account. Make sure that your financial institute complies with the U.S. Patriot Act.
  • Read your 401k plan literature- Check if your 401K charges a fee for either selling funds in your account or for an outgoing account transfer. If your 401K charges a fee for an outgoing account transfer, ask your new IRA custodian if they will pay that fee for you.

  • Check rollover eligibility with your old 401k provider- You may be able to transfer existing mutual fund in your 401k to an IRA at a brokerage firm. Check with your old 401k providers and IRA custodian, if it is permissible. If it is not allowed, your mutual funds must be liquidated.

  • Deposit the check on time- Make sure the check from your 401K is deposited in your chosen financial institute within 60 days of the date it is sent out.

Other Available Options

Apart from 401K rollover to IRA, you have other options as well when you are changing your job.

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