Starting a New Job? What to Know About 401(k) Rollovers

Transitioning from one employer to another can bring exciting advantages like a new set of benefits, paid time off, and retirement options. However, you may find yourself wondering what to do with your existing employer-sponsored 401(k). For some, a rollover may be the best option.

A 401(k) rollover occurs when you transfer all or a portion of your retirement savings from one account to another. When the time comes to make your benefit selections with your new employer, ask about your 401(k) rollover options. The employer should be able to present their retirement offerings, along with details like fees.

What Are Your 401(k) Rollover Options?

Most employer-sponsored 401(k) plans allow rollovers. However, this may not always be the case. Reach out to your new employer’s plan administrator to ask if they permit rollovers. If you decide to do a rollover, you’ll likely have a few options.

Take a direct rollover

Direct rollovers are often the most straightforward rollover option. This is when your former employer transfers funds from your 401(k) to your new employer’s plan, either electronically or via check. The two plan administrators will handle the rollover, and you won’t need to worry about potential taxes or penalties.

Take an indirect rollover

Employees also have the option to take an indirect rollover. In this case, you’ll request a check from your former employer and contribute the money into your new 401(k) yourself. You’ll have 60 days after the release of your old funds to deposit them into your new plan. You may face tax liabilities if you don’t deposit them on time.

There are other tax details to consider when opting for an indirect rollover. The IRS requires that your former employer withhold 20% of the funds when writing you the check. This will reduce the amount that you deposit into your new 401(k).

Put your money into an IRA

Another option you have is moving the money from your existing 401(k) into an IRA. The financial institution of your choice can facilitate this process. However, costs vary, so be sure to check their fees prior to signing up for an account. You’ll have 60 days to transfer your funds into an IRA.

What Other Options Do You Have?

If you’re switching jobs, a 401(k) rollover isn’t your only option. Some people may choose to keep their retirement savings in their existing account or take a cash withdrawal.

Keep your money where it is.

If your former employer permits you to keep your money in their 401(k) plan, you can leave your money there and allow your funds to mature. Keep in mind that if you have less than $5,000 in your 401(k), your previous employer may send you the money directly in the form of a check or place it in an IRA.

If you have more than $5,000 in your 401(k) account and choose to leave your funds there, you can withdraw the money penalty-free after the age of 59 ½. However, you won’t be able to contribute to that account, and you must take the annual required minimum distributions after the age of 73.

Cash out your savings.

Withdrawing your retirement funds as cash is another option, but this might not be the right option for everyone. Cashing out your funds before retirement age may leave you subject to income taxes and penalties on the withdrawal.

If you withdraw funds from your old 401(k), a financial advisor can help you manage the money and make the right decision for you. Some people may find that a rollover is a better option.

Whichever choice you make regarding your old 401(k) funds, make sure you have all the facts and choose the option that works best for you. ePlan Services has in-depth resources on rollovers for both employers and participants. Visit our Help Center to get started.

This content is for educational purposes only, is not intended to provide specific legal or financial advice, and should not be used as a substitute for the legal advice of a qualified attorney or financial professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.