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401k Rollover Options: How to Transfer Your 401k Fund

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When you leave a job where you have contributed to a 401(k) plan, you have three options for the money: Cash out your 401(k), keep it in your current plan, or move it to another qualified retirement account. A qualified retirement account can be your new employer’s 401(k) plan, a Traditional IRA, or a Roth IRA. The action of moving money out of your current 401(k) plan to a new qualified account is called a rollover.

Who is Eligible for a Rollover

You are eligible for a rollover when you leave your job, voluntarily or involuntarily. Some plans also offer what is called an “In Service 401(k) Distribution,” which allows you to rollover your 401(k) fund even while you are still working.

Your Options

Before going through with a rollover, you should consider your options carefully.

1. Cash Out Your 401(k): A BAD idea

Don’t do it. This is the worst thing you could do with your 401(k). When you cash out your 401(k), you are taxed on the withdrawal and potentially penalized.

Any amount withdrawn is subjected to federal, and possibly state and local, taxes. The increased income could also push you into a higher tax bracket. Also, you may be subject to a 10% early withdrawal penalty if you are younger than 59 1/2. Assuming an effective combined federal and state tax rate of 35%, a $100,000 cash out could cost you $45,000 in taxes and penalties, leaving you with only $55,000.

2. Keep Money in Your Current Plan

Typically, you only want to do this if your current plan offers great investments at low costs. Check with the current plan administrator to see if this is an available option for your plan. If it is, ask if there are extra fees for keeping your money in the current plan, and if you can roll the plan over down the road if you change your mind. If everything checks out, work with your current

3. Rollover to Your New 401(k) Plan

If you have access to your new employer’s plan right away, and it offers great low-cost investments, then this might be a good option for you. To rollover into your new plan, work with the new plan administrator to coordinate the process.

4. Rollover to an IRA (usually the best option)

Compared to the options above, a rollover to an IRA is usually the best option. You can usually lower your investment expenses and gain access to a much wider variety of investment options. You can even switch among the many different brokerage firms to take advantage of different investment options, tools, features, prices, fees, and other benefits.

Personally, I use TradeKing and TD Ameritrade; and both of them have representative that helped me rollover my 401(k) into my IRA account.

Also, you also have the option of converting your 401(k) to a Roth IRA, which allows your retirement savings to grow tax-free.

Tax Implications

We already discussed what happens if you cash out your 401(k) — not good!

When you keep your 401(k) in your current plan, roll it over to your new employer’s plan, or rollover to a Traditional IRA, there are no tax liability as long as you do it right; make sure you use a trustee-to-trustee transfer  (also called a direct transfer, see below).

A rollover from a Traditional 401(k) to a Roth IRA does trigger a taxable event, however. It will increase your taxable income, and potentially bump up your tax marginal rate into the next tax bracket.

  • If you anticipate high taxable income this year, it might be worthwhile to hold off on the rollover to a Roth IRA. You can either keep your money in your current employer’s plan (if you are allowed a rollover at a later date), or rollover to a traditional IRA, and then convert it to a Roth IRA later.
  • Rollover into a Roth IRA does not increase your Modified AGI, so your ability to contribute to an IRA should not be impacted by the rollover. (See clause 1b under Modified AGI on the IRS.gov web site)

How to Rollover Your 401(k) to an IRA

Now that you’ve decided on the 401(k) rollover to IRA option, here is what you need to do:

  1. Open an Individual Retirement Account (IRA) with any financial institution that offers an IRA. A good choice is one of the many discount brokers — my personal favorites are TradeKing and TD Ameritrade. In general, you want to pick the investment company that offers the type of investments you want, and that are accessible at low trade commissions and fees.
  2. Inform your employer that you want to rollover to an IRA. Make sure your employer makes the check payable to the investment company that you choose. This is called a trustee-to-trustee transfer, and it helps you avoid the automatic 20% tax withholding (see below).
  3. Invest Your Money. Once the transfer is complete, your money will sit in some sort of interest bearing investment account, such as a money market account, with a very low yield. You will have to invest your money according to your asset allocation plan. The exact investment options you have depend on your broker. In general, you want to invest in a well-diversified portfolio of low cost and passively managed mutual funds (try index funds) and ETFs.

Trustee-to-Trustee Transfer (Direct Transfer)

Trustee-to-Trustee transfer is an instruction to your plan administrator to send money directly to your new 401(k) plan, or to your IRA custodian. In the event that you fail to specify this action and an indirect transfer occur, i.e., the check is made out to you instead, several things happen:

  • You current plan will automatically withhold 20% of the fund. Assuming it’s a $100,000 transfer, you will receive an $80,000 check.
  • You will have to come up with the additional $20,000 and deposit the full $100,000 into the new 401(k) plan or IRA account within 60 days. If you only deposit $80,000, the remaining $20,000 will be treated as a withdrawal (and subjected to taxes and penalties as explained in Cash Out option above). If you fail to deposit any of the money within 60 days, the entire amount is considered withdrawn.

Bottom Line

If you are facing this decision, consider performing a 401(k) rollover to IRA to take advantage of the opportunity to lower your costs and gain greater flexibility. Remember to research the investment company well before you open an IRA with them, and do your due diligence when selecting your investments. If you are uncertain, it’s usually a good idea to consult a professional to help guide you through this process and answer your questions.

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188 thoughts on “401k Rollover Options: How to Transfer Your 401k Fund”

    • @Dave – This entirely depends on your age. For example, if I am 55 years old and have a sizable sum in my 401k, I wouldn’t want to pay all the taxes.

    • If you anticipate lower taxes in retirement, then ROTH may not be good. One should look into each individual situation to see if it makes sense.

      Also to rollover is good idea in most cases. It is not good if

      1) you dont control assets and just end up buying stocks and lose money
      2) you have very low cost index or passive funds in current 401k.

  1. I was laid off a few years ago. I had a job inther interim and now have been employed almost a year at my current place with a good future ahead of me. I now have 3 401K plans. I have left the prior 2 where they were since I was unsure of my future and they seemed safe for the moment. I am not paying any fees that I know of for any of them.

    Should I leave things as is? I do not wnat to rollover into the current 401k just in case. Can I move them into an IRA? Should I? What is the advantage/disadveanges to this?

    thanks

    • @TLD – It depends on what you want to do. Rolling over your 401(k) into an IRA will give you more investment options and more control over expenses. Additionally, you could consolidate the two 401(k) plans and your other IRAs into one account — this will make it easier to manage and you don’t have to worry about losing track of who managing your 401(k) plans.

  2. I’m fully vested with the company I’m leaving. If I go with the lump sum distribution I will lose close to $3,000 in federal and state plus another $1,000 come 2011 return. Also I still owe on a loan under $1,000 in which I will be penalized 20% on the offset and another 10% come 2011 return. Choosing the rollover IRA let’s say 20-80 withdrawal of funds, all these charges will remain except the 20% on the loan. Okay my thing is I have a small business(registered clothing line) in which the money will be used for. Is there a better option to withdraw my 401k without being taxed for this purpose.

    • @Reggie — I don’t think it’s wise to mix your retirement fund with your business. If I were to be in your situation, I would take a look and see if I could find a business loan for my business (as well as cover the payoff amount on the 401k loan).

      If you can secure this loan, use it to pay off your 401k loan and rollover your 401k to an IRA. This way, you preserve your retirement fund and avoid any associated taxes and penalty. Additionally, you might be able to deduct interest paid on your business loan.

  3. Can you have a roth IRA & 401 K simultaneously? I have my funds from my Ex job that I plan to roll over to roth IRA.
    Can i Still continue to have my 401K at the current Job? Can I invest in both every year?

    Should i consider rolling over to roth IRA in this case?

  4. I have $6,000 in a 401K from a previous employee and would like to set up an IRA. I have no clue on what company I should have set up a account with and if i should just do a rollover IRA or a ROTH. I plan to keep this account for the long term commitment. I’m not looking to be to risky but would like to invest. Low fees are a plus! Please help!!!!!

    • @Stan – Since a 401k is a tax deferred account then rolling over into a Traditional IRA would probably be best for you (otherwise you’ll have to pay income tax on the withdrawal to deposit it into a Roth IRA). There are a multitude of quality IRA providers available. Do a little bit of research and find a company that offers the mutual fund mix that you’re looking for.

  5. Great article! Too many people leave money in the company 401k after they switch jobs, and neglect to convert to an IRA or Roth. Once you are established at a new job, that needs to be one of the first things you do.

    As far as the IRA vs Roth, I prefer the roth as I want to minimize my tax burden after retirement. Sonce I have been putting away maximum contributions most of my adult life, I will likely retire in a higher tax bracket than I am in now.

    Anyway, keep up the great articles!

  6. Pinyo,

    I got laid off last year and still have a 401k sitting there, I will be 54 this year and wanted to move the money to an IRA at my local credit union. My question is I am not earning as much as I did and(about $10 less an hour) so this are really tough, I get one more month of severence pay and then that stops. I would like to use about $7000 out of the 401K to pay off my car loan to save the payment of 373. a month. I know I need to pay @5000-6000 in taxes for the $7000 that I need. When I rollover the rest of the money will that be taxable also? Even if I roll it into an IRA.

    Thank You
    Joe

    • @Joe – I’m sorry about your job and situation. Before you decide to do anything, e.g., rollover, withdrawal, etc.; please consult a tax or financial planning professional.

      First, I believe there is a way for you to withdraw from your 401k penalty-free starting at age 55.

      Second, I believe both 401k and IRA have hardship withdrawal provisions that allow you to withdraw the money penalty-free.

      Both of these have some very strict rules that you must follow. I am not an expert in these areas so I suggest you seek out a pro.

  7. When you roll-over a 401(k) to an IRA or Roth-IRA what exactly happens? I have three 401(k)s from past companies in their stocks which are way down. So let’s say I have 100 shares of stock bought at $100/share ($10,000). Now the stock is only worth $50/share ($5,000 if I sold). When I roll over (assuming I put it back in the same stock) will I now only have 50 shares as opposed to my original 100?

    • @Mominwantagh: When you roll over the funds it doesn’t cash out the shares of stock and repurchase them. If you had 100 shares, then when you roll over the 401k to the Roth IRA, you will have 100 shares in the Roth IRA. The value of the account is determined by multiplying the current share price by the number of shares. It does not work out the math to where you get a number of shares based on the original share price. Everything is calculated off of the number of shares you hold.

  8. I am a 40 year old male leaving a job of 15 years to go to a job that will increase my salary about 20%. I have (2) 401k’s at my old job that have a total of $47k in them. Am I better off rolling them into an IRA or a Roth IRA? Why? Also I thought there was a maximum annual donation to a Roth, so if I go the Roth route, am I investing in multiple Roth’s due to the maximum annual donation?

    One last thing–is it possible to take the money from these 2 existing 401k’s and somehow roll them into my existing whole life insurance policy? Or into an existing Roth IRA that I already have?

    • @Scott — In general, you’re better off rolling the 401k over into an IRA because you have more control. As for Roth vs Traditional, Roth is generally better if you can afford to pay the taxes on the $47k and you anticipate that your tax rate will be the same or higher in the future.

      As for the annual maximum, it’s not affected by the rollover; however, it is affected by your MAGI (see: https://www.moolanomy.com/4172/traditional-and-roth-ira-contribution-limits/ ).

      For the last part, I am certain you can’t rollover your 401k into a whole life insurance policy. I am not sure about the second part because when I rollovered by 401k, I rolled it into a new IRA account.

  9. Hi,
    I have a 403b plan with my current employer and switching to a 1099 JOb and will be making 200k. I want to roll over to an IRA that allows me to buy stocks. I understand I don’t qualify for a Roth IRA is that correct?
    Once the IRA is set up is there a maximum limit of money I can put in the account and is it before tax or after tax? Once I’m eligible to take the money out I would be taxed like a 401k/403b?
    What is the story with SEP plan is that something I would benefit from?
    Are there such things as individual 401k plans with any benefits?

    Thanks for your time Please advise

  10. My company is converting to a new 401K provider. They are going to take all the money in the old one and convert to new options in the new one. Given that I will probably leave soon anyway, I was hoping to avoid this step. Can I convert the money to an IRA while I still work there – and before they take it for the new plan?

    • Linda:

      If you are age 59 1/2 or older, you are able to do an in-service withdrawal (select: rollover to an IRA).

  11. Hi, I contributed about 20K to my employer’s 401K plan… then my company got bought out and the newer company offered us another 401K plan and I started contributing to that…

    I also hold a Roth IRA plan…is it possible to consolidate all of them into the existing roth 401K plan…

    I plan to leave this employer soon so I’d want my money safe into an Roth IRA plan…

    Is this possible?

    • @HSS: A Roth IRA is not the same as a Roth 401k. If you meet the income guidelines for a Roth IRA, then you can contribute money regardless. A Roth 401k, on the other hand, is an employer-sponsored plan. Your employer would have to offer you the option to put money into a Roth 401k.

    • @HSS – I think you meant consolidating into Roth IRA (but you said roth 401k). If you meant Roth IRA, then you either have to be older than 59 1/2 or wait until you leave your job.

  12. I have a question of how long it should typicaly take to rollover a 401 K to an IRA account (such as a vanguard). I recently started a new job and I contacted the account manager of my previous employer 401 K plans about my desire for the rollover. He tried to dissuade me from that, as he earns a commission. I told him I was sure I wanted to do that and after some hee-hawing, he agreed to start the process and told me it would involve a lot of paperwork. I have waited two weeks and I haven’t received anything yet. I know a previous coworker from that same company who left the job in March and is just now receiving her rollover paperwork! Meanwhile, this account manager continue to receive a commission from our funds. I was wondering if there are firm legal guidelines about how long this process should take (ie: how fast should a company respond to a request to rollover retirement funds). I am just afraid that this is going to drag on for months and I would rather just get this process completed ASAP.

  13. Hi, great article!

    I have about 20k in my former employer’s 401k (managed through Schwab). My new employer does not offer a great 401k plan. I am 25 years old. Still unclear whether I should rollover my old 401k into a Roth IRA or Traditional IRA. I already have a traditional IRA account (ING) with just $1k that I set up a couple years ago.

    Any advice would be greatly appreciated! Thanks.

    • @Danny – I think the decision will depend on your current tax bracket. If you’re in a high tax bracket (e.g., 25% or more), rolling over to a Traditional IRA is probably better because you don’t have to pay taxes in the $20k. If you’re in a lower tax bracket, going the Roth IRA route is probably the better option.

      However, some people may argue that Roth IRA should be the choice because you’re still very young.

    • @thomas – Absolutely. You can ask your broker about the transfer. Depending on the broker, there will be fees involved.

  14. Hi, I was working in the US until 2009 and now work for the same company but in a different country. My current balance in my 401(k) plan is about 18000. I was told by the plan admin that I had to keep the 401(k) as-is until I left this company. If I leave this company in 2012 outside US, what will be my best option – cash out? I will have zero income from other sources in 2011 and 2012 in the US. If I have aspirations to buy a low-cost home in the US, in that case, what will be the best option? Thank you for reading my query.

    • @Sid – Even if you have zero income in 2011/2012, you still have to pay the 10% early withdrawal penalty if you do not meet the qualified distribution criteria. I don’t know your full financial situation, but in general, rolling it over to an IRA is the best option. If you decide to buy a home, there’s a special provision for withdrawing some of your money, penalty-free, to purchase a home.

      I hope this helps.

  15. Hi, I have the choice to roll over my previous 401K into a Roth IRA or Traditional IRA. I still am confused as to which would be a better choice. I only have 2000 in my previous 401K. My new employer will began a new 401K after 1 year of employment. Can you give me advice as to which is best with this amount of money?

    Also, to my understanding, my 401K was invested into several funds. When this is rolled over to a Roth IRA or IRA, does it continue investing in the same funds or do I need to start over?

    I’m pretty new to all of this, any advice would be appreciated! Thank you!

    • @Kelly – The choice depend on your age and tax bracket. If you are in the low tax bracket, e.g., below 20%, Roth is an attractive choice since it allows you to invest tax-free (but you have to pay income taxes on the conversion this year) — however, if you are in the higher brackets, the tax savings advantage of Traditional IRA might be better.

      When you rollover, they will sell all of your holdings and send the money to the brokerage house where you open an IRA account (e.g., trustee to trustee transfer). Once the money is deposited into your IRA account, you have to invest the money according to your investment plan and the investment options available. If you’re a new investor, putting all of the rollover into a Vanguard Target Retirement Fund is a good option.

  16. my position at work after being there 16 years was eliminated (given to a family member of the company) because of my salary there i was only able to contribute the minimum, but because of my age (55) i was able the last several years to make the 5,ooo $ catch up. the company never had a contribution to the plan.. i have about $ 40,ooo in there and have been off work since december.

    i am not real savy as to picking funds etc, we had someone at work that kinda did that for the rest of us.. of course we all took a beating like everyone else a while back….

    i should be starting with a new employer next week , a much smaller company with my salary about 40 % less than before and they have no 401 k plan as of yet….i do not think they will either for several years..

    what should i do with the $$$ in the 401 k plan… i am single parent of two teenagers, and i have full custody of them for the last 10 years….

    btw.. should i open a custodan acct for them ?

    thanks

    • @mike – It depends on your situation, but it sounds to me like rolling over your 401k to an IRA (traditional) is the best option. You can invest in something simple like a Vanguard Target Retirement Fund.

      • i am correct in thinking that if i roll by 401 k into a roth account, i will pay taxes ? are there any other penalities ? will i have access to the money immediately ? i thought i read i have to wait 5 years before i can touch it.. is this correct ?

      • @Mike – Yes, you will pay taxes because 401k is funded with pre-tax contributions and Roth is strictly for after-tax contributions.

        There should be no other penalty. Consult with the broker where you’re opening your Roth IRA account and they can walk you through the process.

  17. Hello! My husband has two 401k plans from his previous employers. We are planning to rollover them to a traditional IRA. Do you think it is a good idea to rollover them to our credit union’s IRA? According to our credit union’s website, their dividend rate for IRA is 2.07% and the APY is 2.09%. Do you think this is good?

    Thanks.

    • @Donna – I don’t know the specifics about your credit union and your finances, so I can’t make a recommendation. But in general, I prefer to have my IRA with a discount broker that offers a full array of investment products. You will have access to better and less inexpensive investments than you would typically get with a bank or a credit union — which in my opinion tends to overcharge for investment products. If you’re uncertain about what to invest in, my recommendation is to look into Vanguard Target Retirement Funds. The return is not guaranteed like an IRA CD, but it has higher investment return potential in the long term.

  18. My company was just bought out and the 401k will be terminated. I will have to look for a new job in a month. I’m 45 yrs old and would like to rollover to an IRA but would like to also take out 30% to pay down debt and establish a emergency cash fund while out of work. For the sake of discussion, what would the 2011 tax and penalties look like if I take out 1/3 of $90,000 in a 25% tax bracket making $40,000/yr? If it’s too steep, I may just bite the bullet and keep it all in the IRA? Thank you in advance for any help you provide!

    • @jun – The penalty is 10%, so taking out $30,000 will leave you with approximately $20,000. I think the price is very steep. If I am in your situation, I’d roll it all over into an IRA — and remember this fund is protected from creditors (they can’t touch it). As for you debt, you might be better off consolidating it into a balance transfer credit card or Lending Club. You can search the blog about these two options.

  19. If I’m going to roll over my 401K to a Roth IRA due to leaving the company does it follow that if a wait to time this roll over in a year where my income is at a much lower tax rate(due to being unemployeed etc)I will pay the loewer rate on the roll over? If I’m at 28% this year and rolloever the 401K to Roth I’d pay 28% on the roll over. If I wait until the following year where I may have income at a 15% rate does the roll over get taxed at that lower 15% rate in that year?

    • @Brent – That’s correct. You can rollover to a traditional IRA and later convert it to a Roth IRA.

      You will be able to invest your money as soon as it is cleared in your Roth IRA account. The 5 years rule apply to penalty-free withdrawal.

      • Thank you and I understand. But I was wondering about the tax rate the transfer would be taxed at based on the other income during that year. My understanding is that the roll over to a Roth is taxed at your standard rate that your other income would be taxed at in that year and the rollover amount is not figured to increase your rate to a higher bracket. The Roll over from 401K to Roth is going to happen, I just wonder if timing it in a low income year would provide the benefit of a lower tax on the roll over. Thanks.

      • @Brent – The first portion of your statement is correct: “the roll over to a Roth is taxed at your standard rate that your other income would be taxed at in that year”.

        I am not sure about the second part: “the rollover amount is not figured to increase your rate to a higher bracket” — I think it is incorrect.

      • 401K to Roth rollovers are pretty common. And I have seen pretty reliable info that a rollover is not meant to, or treated as an event that would increase your income in the year of a rollover to a Roth. It’s not a withdrawl just a need to transfer from an employer 401k to an existing personal Roth IRA and go from a pretax traetment to after tax.

        The part that I havn’t found an answer to is how the existing ordinary income and thus tax rate comes into play for the tax on the rollover.

        Timing it in a year of low income(unemployment)and thus a lower tax bracket would seem to be a no brainer if the rate on the rollover is taxed at the rate of your regular income that year.

        Assuming that the rollover amount does not appear as income that year (pretty sure it doesn’t) then it would seem there is no other rate to tax the transfer at than that rate you were already going to pay that year based on regular income.

        So if I earn 80K in the year I lose my job and I make the transfer in that year I pay 25% or 28%(whatever the rate is on that 80K). Or I hold the 401k at my company(my choice) into the following year and trandfer it that year where I may only have unemployemnt income and thus be taxed at a lower possibly 15% rate. The rollover if I suspect it works as I’ve read, then I pay 15% on the rollover and not 28%.

        The question may be beyond the knowledge or scope of this message board. Thanks for all the input.

  20. In Feb, 2011, I made an institution-to-institution transfer with funds going from my company’s 401K plan into a traditional IRA account at my local bank. The bank categorized it as a ‘rollover’. Now in Oct, 2011, I would like to make another move of exactly the same nature. My bank says I can only do this once a year. Is my bank correct?

    • @Dennis – I believe your bank is giving you false information. I have never been in the situation myself, so I recommend that you consult the broker whom you would like to transfer fund to. I have many questions answered by Charles Schwab, TD Ameritrade and Scottrade. You can ask them and they will guide you through the process (note: you don’t have to use them if you want to choose someone else).

  21. Was considering the rollover of a 403B account to an IRA

    I cannot truly see any advantage to this other than my own “control” of funds– unlike I have now with my employer account.

    Given the nasty economy of late — one wonders of any positive gains actually in keeping funds in the market at all! Perhaps buying a good race horse may be my option.

    • @bawstonboy – I don’t know much about 403(b), but I think the same benefits apply. As far as the investment options go. You’re kidding about race horse right? If you want safety and positive gains, have you look into TIPS?

  22. I am 29 years old and have a 401k at my current employer as well as $30,000 in another 401k at my previous employer. Given my age and tax bracket (28%) should I roll my old 401k into my current one or do an IRA?

    • @Michelle – If you roll the money over into your current 401k or a traditional IRA (both of which are pre-taxed account), there is no tax implication as long as you do it correctly, e.g., do a trustee to trustee transfer instead of handling the fund yourself.

  23. My husband retired 6/30/11 with about $80k in a 401k. He will be rolling it over into an IRA but my question is will the amount he gets be figured on the rollover date, i.e., value as of 10/28/11, or the price at the end of the previous quarter, 9/30/11. When looking at the value in their website, the amount in the account only changes every quarter.

    • @Nancy – The timing should not matter much if you plan to invest the money in the same way. If you sell your funds for less, you’ll also be buying them for less. That said, the value should be calculated based on the date that the underlying assets are sold.

  24. I am 31 and looking to roll over my 401k from past employer of about $40k into an Roth IRA, however with my new employer I make more the modified agi, so does this mean I will only be able to roll over and not contribute until my income falls below minimum threshold or can I not rollover? Also at what amount (%) will the rollover amount be taxed?

    • @J – I see two separate issues here. 1. You always has the option to rollover to a Roth IRA, and your rollover will be taxed at your current tax bracket. 2. You should be able to contribute as long as you are under the Phase out limit (your rollover amount is excluded from the Modified AGI).

      See clause 1b under Modified AGI: http://www.irs.gov/publication.....1000230977

    • J. You can do the rollover to a Roth, however the entire amount of the rollover will be taxed at your personal tax rate. The amount of the rollover will be reported as income to you and you will pay the tax on it. If you roll it to a traditional IRA there will be no tax hit to you. If you are above the limit you will not be able to contribute, however you could check with your current employer to find out if the current 401K plan has a Roth option. Those are becoming more avaialable in 401K plans all the time.

      If you do roll it to the Roth you do not want to pay the taxes from the fund because this will be counted as a distribution that will incur a 10% penalty from the IRS for early withdrawal.

  25. Hi, I worked in the US for 7 years, and have approx $70,000 in my companies 401K. I have since transfered to the UK (staying with the same company). I am not a US citizen, can i open an IRA and roll my 401K into this, or is the better option to cash it in?

    Thanks

    • @beverley – I did some research and I believe you can rollover your 401k into an IRA — assuming your company allows an in-service rollover. If you do the rollover, make sure it’s a trustee-to-trustee transfer so you don’t get hit with taxes and penalty accidentally. You will also have to report the rollover to the IRS in your tax returns. Unless you reach the full retirement age and need the money, don’t cash out — you will get hit with taxes and an early withdrawal penalty.

      Be sure to check with your 401k plan administrator and the brokerage where you plan to rollover the money to for specific details and requirements. It’s also a good idea to have a quick chat with a tax adviser.

    • @bonniegiddings – If you’re referring to rollover, I believe you could do a partial rollover. I did it with my 401k plan (e.g., didn’t get all of it at once and has to do a second rollover) and also when I rollover SEP/Traditional IRAs to a Roth IRA.

      Please check with your plan administrator to be sure.

  26. OK, I’m 59 1/2 and would like to start using some 401K money I have been saving for 30 yrs. I am still working, and will for another 3-5 yrs. Can I take out a partial amount like $100,000 from my 401K and do a custodial to custodial to a IRA and from there get a check from them every month for lets say 1000 dollars. I know I will have to pay taxes on that 1000 bucks but is this possible?

  27. I currently have over 147k in my 401k plan, and have (1) outstanding loan for 17k. I am an employee of MF Global and last week everyone was laid off. With significant bills for Mortgage, Car Payments, Insurance, Utilities, and Credit Cards, I can use my $$, but look to lose some 35k or more to taxes, so that worries me. is there any way I can use some of the money to avoid falling far behind with expenses, and not lose as much to early withdrawl taxes?

  28. My son has a great opportunity to buy a house but it would require him to take out a loan from his 401(k). He also may be making a job change in the near future. If he rolls his 401(k) into the new job can he still pay back the loan or would the loan then be considered a distribution and he would be hit with the tax and penalty?

    If that is the case, then could I make him a loan to buy the house and when he does the rollover, would he still be able to take a loan for the house but pay me back since he would already own the house?

  29. @Dana – Unless you have a lot of money in your 401(k), there is no reason to start taking money out now, especially while you are still working and belive that you’ll live a long and happy life. There will be plenty of opportunity to take the money out.

    If you still want to take out the money, why can’t you withdraw directly from the plan since you’re of the right age?

    @Jerry – Have you considered other lending sources? For example, you can borrow $35k from Lending Club and $25k from Prosper – see: https://www.moolanomy.com/5428/borrowing-money-from-lending-club-and-prosper-mmarquit01/

    @William – I don’t think your son is in a good financial position to buy a house if he has to borrow from his 401(k) to do it. I would encourage him to strongly reconsider it. Yes, the market is good for the buyer and the mortgage rates are low, but if your son haven’t save enough money up to now, does he think he can pay two loans going forward?

    If he is planning to leave his job, this makes it even worse because he has to pay it all back before the rollover; otherwise, he pays taxes and penalty.

    As far as taking out a loan after the rollover, I don’t know the answer. He could check with the new plan administrator

  30. I had a 401k at my previous job. At the current job I just started, they will not offer me 401k until I sign as an annual employee. I got a letter from my previous job saying that I have like $330 built up in my 401k (not much, but I had just started investing in it when I became full time), and that I have to do something with it. I don’t want to cash it out because I know it is like a 10% penalty. But I don’t know what would be better for me: Traditional or Roth IRA. I have no idea what my tax bracket is. And I don’t know the best place to open any type of investment accounts either.

    I am 24 and clueless. This stuff is frustrating because I do not understand it. But I REALLY want to get started in investing. I want an IRA, a 401k, etc. etc. etc…. anything to help me be well off and financially stable.

    HELP.

  31. @Jessica – You can certainly rollover $330, but it might be hard to find a broker or bank that allows you to have $330 in the IRA without incurring an account maintenance fee. Also, $330 is probably too little to invest if you factor in the cost of trade commission as a percentage of your investment.

    You might want to look into IRA CD. You can check with your local banks, or try Discover Bank: https://www.discover.com/online-banking/ira-cd/#faqs

    Another option is to see if you could contribute to an IRA, then combine your rollover into a single IRA account to meet the minimum balance requirement.

  32. @Pinyo, I figured $330 would be to small of an amount, but I have to do something with it before Dec. 7th or its a 20% penalty. And if I get it sent to me as a check it is penalized too. So I’m kind of stressed out about it.

    I need to know what to do really

  33. I was looking at this since I have a pretty small 401K from part time employment however the company stock is not doing so well. I want to just ladder CD’s or pick a longer term CD and hope rates don’t go up too much so I lose that chance. Here is my really important question, do I have to pay fees if I just research on my own and choose the CD’s and bank I want? I don’t see less than $2000 worth a fee, yet I don’t want it where it can lose money either.

  34. I recently switched employers, and in the end what I want to do is transfer my 401k, to a couple banks traditional IRA, when cd rates go to a decent amount, I know that is years out so I got time.

    Here is the issue. My amount in my 401k is > 250k, so any bank or credit union I would transfer to I would end up having some money uninsured. And there is a provision in the 401k which says I cannot transfer part of it to another institution, it’s all or nothing. So debating on seeing where I can send it to, which will let me later split it. Are there any gotcha’s I got to look for. Like I am vaguely remembering some rule that says you can only do 1 transfer of this nature per year. Realize, to do what I want, if that was the case, I would probably transfer all to vanguard, because it is sipc insured, then the following year, transfer 1/2 to a bank/cu, and transfer the other half to another. Seems like alot of hassle. Any other options I can do?

  35. go ahead and set up the bank IRA and transfer it all. At that point it is no longer part of the 401K plan and is no longer subject to their rules. At that point you are in basically a self-directed IRA and you can then transfer whatever part of it you want into another IRA you establish at another institution. Remember your investments are not insured against loss due to market activity, only against failure of the bank and what is held in their accounts (CD’s, savings, etc)

  36. @Anne – You can do research on your own. You just have to find a bank or broker that fits your investment needs so that you can minimize fees and maximize your returns.

  37. I have a question in regards to 401K to IRA rollover OR complete 401K withdrawal in case of a company international transfer. I was with this company in US for 5 years. I then took a transfer to India. Both are seperate legal entities in US and India respectively. For all practical purposes, I cannot return to US. My contributions have stopped as I am not its employee. However when calling my plan administrator, they tell me that my employer in US still reports me a ‘active’ and hence they cannot allow funds withdrawal. Would like your views and opinion.

  38. I am 65 years old. I have about $100,000 in a 401(k) plan that I left with a former employer’s plan. Plan management costs me nothing, and the investment options are satisfactory. However, I now need income to live, and that plan will make only a 100% distribution, which I don’t want to take because of the taxes. Should I convert the 401(k) to an IRA so that I can access the funds, little by little?

    Thanks for your advice.

  39. My company is about to get bought out. Scheduled for Q2 2012. In the past when my company bought others they laid the employees off one day, paid them out and then hired them the next day. I have a 401K with my current company that I want to roll into an IRA. How can I do this so they won’t start the 401K into the new companys 401K?

    FYI, I’m under 50 in case that matters.

  40. @bbhatt – That sounds like something that you have to resolve with your US employer. If you are no longer with them, they should give you the option of transfering your money elsewhere including rolling it over to an IRA.

    @Thomas – Rolling your 401(k) over to an IRA sounds like the right option for you. You will have to manage the IRA in such a way that would allow you to withdraw money with the least expenses.

    @David – You would have to check your employer to see if they’d give you the option to rollover your current 401(k) into an IRA.

  41. I have a rollover IRA , a 401k and now a new company coming in is offering a 403b plan. Do I put it all together or just put 401k in with the rollover I currently have? I need help.

  42. I am about to retire. I must move my company 401k savings. If i roll it over to an ira, will i be able to withdraw more than the minimum reqired withdrawal from my ira as i the need arises?

  43. Another significant consideration is how it affects Roth conversions. For those of us who have to back-door by doing a traditional IRA each year and then converting it, the conversion includes all IRAs balances but not 401ks.

  44. @Susan – If you have a traditional IRA, you might be able to rollover your 401(k) and IRA into the 403(b). While it’s legal, it’s ultimately up to the 403(b) plan administrator whether or not they would allow it. In any case, I still think it’s better to rollover your 401(k) into an IRA, and keep a seperate IRA and a 403(b) plan.

    @Peter – You have the flexibility to withdraw as much as you want from an IRA.

  45. We took out a 401K loan to cover a loss on our home when we moved and had to sell at a loss due to the current market conditions. We took out the total $50,000 and have $40,000 remaining to pay, but my husband just moved to a better job. We are now faced with having to default on it and pay a huge penalty. Feeling pretty defeated after being responsible folks, paying the loss on our home in the first place, and now getting hit with huges taxes. We don’t have the money to pay it off or any rich relatives to loan it to us. Can we roll it over to his new employer? Do we have any options besides defaulting and paying who 15K or more in taxes?

  46. I recently retired. I have some money in the 401K with my employer, part of which is my contribution made post-tax. I am thinking of rolling the whole amount over to an IRA. Can I roll the post-tax contribution to a Roth IRA and the rest to a traditional IRA, without subjecting the Roth IRA rollover amount to any taxes?

    Thanks

  47. I am 62 1/2 wanting to retire early in the next few months. I’ve had my 401k with my company ever since they introduced it to us. I need to take money out for income after I retire. $200,000 in the account. I need to take $1,400 a month for income. Do I need to do a rollover or keep it with my company. What’s my best options for tax purposes? My bank says they can handle the 401K for me. What do you suggest?

  48. @J Jones – I am not sure if your 401(k) plan allows small regular withdrawal, you’ll have to ask them. If not, you can rollover to an IRA. When it’s in an IRA, you will have to decide how to invest your money to grow and preserve your money, and at the same time minimize your expenses as you withdraw your money. This is an important decision and I recommend that you see a financial planner.

    Based on my rough calculation, if you keep your withdrawal steady at $1,400 per month (which would be hard to do due to inflation), you will run out of fund in about 10 years.

  49. i am still working and i am over 62. because my division will be acquired by another company and i plan to rollover to the traditional IRA. I talked to a reprentative of one financial company and i asked them to see them in person and they refused and want to set up by phone and on-line they have so many questions to ask me my name, dob,ssn my children names dob ssn my current financial situations… i dont feel comfortable. my question is should i tell them everything about me my family to them by phone to open IRA account or should i see them in person and their process is normal or not. many thanks.

  50. 401K or IRA. I would like to withdraw money from my 401K. I am over 59 1/2. Is there any tax advantage to transfering money from the 401K to an IRA and then start taking money out? Yes I can take withdraws from my 401K right now but from what I’ve been told its a 20% federal and a 10% State immediate hit and at the end of year the orginal amount you took out your taxed for again. So would there be an advantage to putting bucks into IRA then withdrawing from there. Thanx

  51. @p.vu – I think it depends on the company. I don’t recall giving that much information over the phone. When I dealt with TD Ameritrade, Schwab, and Scottrade, I went to the branch. When I dealt with TradKing and Vanguard, I filled out the applications and mailed them in.

    @Dana – You pay the same amount of income taxes when you withdraw from 401k or IRA. When you withdraw from your 401k plan, the plan administrator will withhold taxes and give you the difference (this means you will owe less taxes when you file, and possibly even get refunds).

  52. Hi: I am retired with no earned income. I have IRAs and 401Ks coming due for required minimum distribution this year. Can I roll over either the RMD or entire IRAs including lump sum retirement payout to Roth IRA? What are the limits? Thank you. Johan

  53. @Johan – What are you trying to accomplish? You cannot rollover your RMD amount.

    You will have to pay taxes on the non-RMD amount you rollover from your 401(k) to a Roth IRA and your traditional IRA to a Roth IRA conversion; so I don’t understand why you would want to do that.

    @P.Vu:
    1) They can provide you with the specific steps, but a CPA would be the best person to talk to.

    2) IRA is a generic type of account. Some banks do offer IRA CD or IRA MMA because they don’t have a full service IRA account. These are appealing to some people because they are easy to understand (but usually are not the best)

    3) That’s usually how it work, you have to open an IRA account so that money could be roll over into it.

    4) It took me about 2-3 weeks. I am not sure about the withdrawal wait period. You should check with the IRA rep or your CPA.

    5) Generally, no and I didn’t pay any fee when I did my rollover. Your situation might be different.

  54. Again Many thanks to Mr Pinyo for your great answers

    I really appreciate your kindness to help me understading the rollover process … today i would like to ask you few more questions:
    1) is that true if i am over 59 1/2 years old then i can rollover my 401k with the current employer to my IRA account with a bank or any financial institution which has the rollover ira option while i still work for my current employer
    2) if (1) is true (my thinking is correct) then first I must talk to the bank or the financial company to open a rollover IRA account … then secondly I must talk to my emploer to ask them to send a check to withdraw my 401k balance and send it to the bank on behalf of my IRA account am i correct ?
    3) somebody told me : do not agree if the financial group who hold my 401k money give an option to send the chech directly to me and let me take resposibility to bring that check to the bank i have an IRA account … that way is dangerous because I will end up to pay tax on the amount of money i receive in the year the process taking place…
    4) do I have to concern about the bank or another financial company having the money insured with FDIC for each individual account with them – the limit and regulations ?
    Again many thanks to Mr Pinyo for your great help
    God bless you and your family

    • @p.vu –
      1. What you’re referring to is called an in-service distribution and you can read more about it here: http://www.goodfinancialcents......l-working/
      2. Correct.
      3. Correct. You should ask for a trustee-to-trustee transfer where you 401k plan send money directly into your IRA account.
      4. If you transfer to a broker, it is covered by SIPC protection. You can read more about it here: https://www.moolanomy.com/4585/what-happens-if-my-broker-goes-out-of-business-ttolar/

      • again many thanks for your replying my questions

        1) in your opinion is that the best way to talk to the representative in person about the rollover 401k to ira, isn’t it?
        2) i am confused about traditional ira when they talked about ira cd, ira money market, ira investment … is there any standalone ira with interest in it?
        3) can i ask them to open an ira first then i know my ira account and process the rollover from 401k to that account…
        4) how long the process will take place? and when the money loaded to my ira account … do i have to wait for 3 months to acctually start withdraw my money?
        5) do they charge any fee for the process of rollover… if they do how much the fee normally cost? and for example i have 100k fully vested then if i rollover from that 401k to ira should i get 100k in that ira account or they will transfer 90k to ira and 10k to somewhere else.

        I really appreciate your help … because i do not know much about the rollover process… it seems to me it is a bit tricky
        many thanks again … happy new year

  55. In 2011 I did a direct rollover from roth 401k to roth IRA. The total amount was $20,000. My after tax contributions were $14,000 and my employer contributed $6,000. Am I correct to believe that I will pay taxes on the amount that the employer contributed to my account? Are you aware of any ways to defer this tax?

  56. My sister went to do her taxes and they told her she needed 1099 forms from her previous investment company (through ex employer) and one from the bank. On the form that she completed through her employer she checked off that she wanted to do a rollover of her 17K from AXA equitable in her 401K to a roth IRA that was opened with Wells Fargo. A check was written to her name and was deposited into the Roth IRA. Now, H & R Block is trying to prepare her taxes and is telling her that she needs to pay taxes on 17K. Is this correct?

    • @Veronica – If AXA wrote a check to your sister, then they would have already withheld 20%, or $3,400 (20% of $17,000). If your sister deposit the $13,600 check from AXA plus $3,400 from her own account (to make the $17,000 whole again) into Wells Fargo within 60 days, then she will get the $3,400 back when she does her taxes. If she only deposited $13,600, then she will have to pay taxes on the missing $3,400 plus a 10% early withdrawal penalty (if she’s not 59.5 yrs old).

  57. I “rolled” over my 401K into an IRA after getting laid off last March. It was a “trustee to trustee” transfer as you indicated is the best way. I just received a 1099 in the mail from the original 401K provider,,?? Any idea why?? What does this mean? Who should I talk to about it?

  58. I am 64 and I want to put money in my established Roth IRA that was opened in 1998. I want to add money into that account and I think I read somewhere that the new money added has to stay in there for 5 years before I can withdraw the original amount and the interest. Is that true since this Roth account was opened in 1998 and the account is now listed as a Roth IRA? I can not contribute to my Traditional IRA and I have a 401K from my employer.

  59. If i roll $3600 in after tax money from a 401k to an established Roth IRA in February 2012, does the $3600 rollover limit me to $1400 more for 2012 or can i still contribute $5000 additional?

  60. I’m going to retire and roll over my 401k to an IRA. I have no idea how to manage my IRA. Where do I learn how to do that?

  61. I am changing jobs, and I know I can roll my 401K from my current (soon to be previous) employer to a firm and then I can put the money in stocks/funds that I want. BUT, I would like to keep ownership of the stocks that it currently holds, because they were bought at a very low value and now are worth much more.

    When that money/account is rolled over, does it move as “cash” only, or does it retain ownership of the stocks and funds that it is valued from owning?

    If I want to keep ownership of the stocks, do I have to leave it in the company 401K that I am leaving?

    Can I roll a “partial” amount, say from the “funds” that it owns, but leave the full amount that owns the stocks?

    Hope this makes sense, this is all new to me…

    • @Firstmate – Because these accounts are tax-deferred, you don’t generate a taxable event when liquidating these stocks to rollover. You could sell, rollover, and repurchase these stocks. However, it does generate a gap and trigger trading fees. You could ask your trustees to see if they would allow asset transfer (generally, the answer is no).

      As for partial transfer, you have to check with your 401(k) plan administrator.

  62. I put $6000 into my IRA for 2011. My husband ended up making too much money for us to get the tax deduction so since we’ve already paid tax on that income, if I move that $6000 to a Roth IRA, I am told they will call it a tax distribution and I will have to pay income tax on it in 2012. That doesn’t seem right since we already paid income tax on our income in 2011 and I am just putting it into another IRA. I’m not withdrawing the money to keep. My hands will not even touch that money. Do you think I will have to pay tax on it twice?

    • @Sharon – Your situation is fairly complicated so you might want to consult a pro. Based on this article — http://www.biblemoneymatters.c.....-roth-ira/ — it appears that you can’t decide to move just the $6,000 non-deductible portion into a Roth IRA. If the $6,000 represents 10% of your total IRA, then 90% of the conversion will be taxed.

  63. I just left a Walmart and have a fully vested 401k. I want to invest in options and stock. I want to know when it is time for to receive the money (less than 30days). Will I be taxed on moving my 401k to TD Ameritrade. And when its there and I start trading and making a profit will I be able to take my money out.

    • @Terrell – If your TD Ameritrade account is a Rollover IRA account and the money is transferred directly from your current plan to TD Ameritrade, then there should be no tax and penalty. As for the profit, you can’t withdraw that until you are 59.5 years old unless you pay the 10% penalty. You always have to pay taxes on withdrawal from 401(k) and IRA.

  64. Hello Mr. Pinyo:
    I am non-working 70yrs, single, with $11K traditional IRA in a bank,$40K trad IRA in a mutual fund and $94K in pre-tax 401k with former employer. Is the MRD mandatory? I do not need the funds now and would like to leave it if possible where they are to avoid taxes at least for now, otherwise my tax bracket may jump from 15% to 25%. If I must take the MRD this year, it allow to rollover just the MRD amount to ROTH IRA to avoid double taxation (now and in the future if I must re-invest it in taxable investments or it would be better to do yearly partial rollover from 401k to ROTH IRA, pay taxes and be tax free in the future? The 401(k) broker told me that they allow partial withdraws. If I rollover partial now from 401k to ROTH (before file 2011 income tax) the tax that I must pay, it allow to report it in 2011 income tax? My income perhaps would be less last year if I have to take MRD this year. Please advice the best options available.
    Thanks
    Vera

    • @Vera – Yes, Required Minimum Distribution kicks in when you reach 70.5 years old. Unfortunately, you cannot rollover just the RMD portion, and technically, there is no double taxation. You take the distribution and you don’t have to pay taxes on that amount again (except for the earnings).

      You can rollover your 401(k) to a Roth IRA if you qualifies. However, you will still be paying taxes on the rollover, plus the RMD — so that doesn’t make sense either.

  65. I rolled over several old IRAs in 2011 to a traditional retirement IRA. When I received my 1099-R forms I found out that some of the money that was rolled into the new IRA was after-tax money. Now I’m told I can’t get the after-tax amount out of my new IRA or move it into new a Roth IRA, and I will have to file an 8606 form every year indicating the after tax amount that went into my IRA. I looked at the 8606 form on the IRS site and frankly, I can’t make heads or tails of it. Any advice would be greatly appreciated. Thank you.

  66. Can I use a 401k rollover from a previous employer to paydown a loan on my current 401k? How about an ira transfer to paydown the loan…

  67. Retired recently at age 57. Can I withdraw from 401k now without 10% excise tax – then turnaround and do rollover to IRA? Need to get my hands on some of the money now…

    • Edward, Look up IRS rule 72T. It allows you to roll your 401k into an ira and then withdraw substantially equal amounts for 5 years without the tax.

    • @Edward – As per Gilbert, you should look into substantially equal periodic payments exception, i.e., Section 72(t) distribution. The full rules can be found in IRS Publication 590.

  68. Hi Pinyo…

    My wife and I are Federal Employee’s and we are both 56 years old. We are planning on retiring this year (10/2012). We both have 401k’s and understand that our maintenance fees are minimal through the Goverment plan.

    If we can rollover our 401ks to a Roth IRA, is there a limit to how much we can rollover? Would we be able to rollover the whole 401k at one time, or over several years?

    Would we have to pay taxes to do so? Or, as I read, make our AGI go up for the year depending on how much we use of it. As our 401k’s sit now in a very low interest gaining “G” Fund. We decided not to gamble our hard earned money in this economy so close to retiring.

    Your reply would be greatly appreciated.
    Thank you.

    • @Randy – If the main purpose is to gain more control of the investment, why don’t you just rollover into a Traditional IRA? I think that gives you even more control than rolling into a Roth IRA since you do have to pay taxes on the entire rollover amount.

  69. I finally got my check back from fidelity due to excess contributions of $150. They tell me I will get 2 1099’s one for the excess withdrawl, the other for the $5 interest, however I am not getting them until January 2013??? Does this seem right, for excess contributions for 2011, or do I need to call and ask for a manager at fidelity. I just don’t understand because I got to pay the taxes on this excess in 2011, and it is hard to do it when I don’t have a w-2 or 1099 representing it. Thanks

  70. I was laid off from my employer in November 2010, and had a 401K from them through Merrill Lynch. I have since started with a new employer and have started a new 401K with Vanguard. I was told to have my 401K rolled over to Vanguard, but after speaking with Merrill Lynch, they suggested rolling it into an IRA.

    I am 41 years old, and I have no idea what tax bracket I am in, so I’m not sure if I should roll into new 401K or put in an IRA. I’m very confused. I have no idea what any of this means, I just knew it was important to have a 401K.

    Any suggestions would be nice. Help!

    • @Heather – If you are not that comfortable investing on your own, rolling over into Vanguard and inveting the money in their funds is not a bad idea. In general, rolling over into an IRA is a better advice and allows for more options and flexibility.

  71. I have money in a ROLLOVER IRA. What are the rules if I want to withdraw money to purchase a home as a first-time home buyer?

    Thank you, great site, very informative.

    JS

    • @Jack – For home purchase, I believe you can withdraw upto $10,000 (without the 10% penalty) but you still have to pay taxes on the amount.

  72. I got laid off my job in 8/2011 and have a 401K ($60K) with my employer. I don’t have job yet & want to rollover the 401K to a Roth IRA. I’m 60 years old. I bank with a credit union and recently went to a financial advisor. He told me I would be in a better position financially with a Roth IRA because I would have better options and diversification with my money plus the fact I’m in lower tax bracket now. I could do this before 4/17/2012 so I could file it in 2011 when still working. I hope this makes sense because I’m still looking into my options with the Roth IRA rollover. Also, would I have my former employer make the rollover check out to the credit union to put into Roth IRA account?

    Thanks for any advice you can offer.

    Jill

    • @Jill – Rolling over to an IRA is probably the right decision. The choice between Traditional IRA vs Roth IRA really depends on how much taxes you expect to pay now vs. at the time of withdrawal. If you are the 15% tax bracket or higher now, I’d suggest rolling over into a Traditional IRA so that you don’t have to pay additional taxes — you’ll be taxed when you withdraw the money, but you can control that better than paying taxes on $60k all at once.

  73. Hi, I retired about a year ago and need to roll my 401k over to an IRA (traditional). Some after-tax money is in the form of company stock, which I know I must liquidate.

    Should I first sell shares with the lowest basis? What are the pros and cons of the “bottom up” and “top down” approaches? Thank you for your help.

    • @Martin – I don’t think you can choose to liquidate the shares with lowest basis first. It’s usually the average or the FIFO method (oldest shares are sold first). That said, you might be able to rollover your shares without liquidating (check with your plan administrator).

  74. I have been left in a situation where I need to take money out of my 401K after being fired from my job. I have no choice but to do this. The CSR that works for the 401K company explained that I could roll my money over into a ROTH and then withdraw it and I would be able to withdraw the full amount without paying taxes immediately. (He stated that I would have to pay taxes in the future). Is this true?

  75. Great site! I am 62, retired and have $70,000 in a 401K. I just took out a mortgage for $60,000. And would like to withdraw from the monies on a bi-monthly basis to pay mortgage. Is the best way to do this to open a Roth? Trying to has the least impact on paying taxes. Thank you

    • @Lynn – You’re over 59.5, so you can withdraw from your 401(k) without incurring an early withdrawal penalty. Unfortunately, you have to pay taxes on your 401(k) — you can avoid it. The good news is that you can turn around and claim mortgage interest deduction when you file your tax returns.

  76. HI i recently left my job and have a small 401k account 2000 and am having trouble with bills till receiving my first full paycheck would I be better to cash out the 401 or roll it over into a ira and withdraw from that.

    thanks

    • @Keith – I normally advise against taking money out of 401k account to pay bills. However, you know your situation best and if you feel it makes sense to pay taxes (which you normally pay anyway) and the 10% penalty, then go ahead and do it.

  77. Recently , my company was bought out by another and then asset dissolved. I continue to work under the new company but will soon receive the former company’s retirement benefits package as a direct trustee to trustee rollover to an IRA recipient. I am still deciding plans meanwhile on where to invest the amount . Initially it will be as a lump sum ….lets say $ 70,000.

    Can that lump sum be split into two amounts…say $ 35,000 each and directed to two different investment groups,….say Schwab , and say…T Rowe Price, so as to invest in two IRA accounts? instead of using in just one?

    • @Sirknight – That’s depend on your plan administrator. If they allow it, then yes you can split it. But why would you want to do that? Splitting it would mean extra work to administer the two accounts.

  78. Hello Pinyo,

    My goal is to keep contributing to my 401K while keeping the same mix of investment provided by my previous company’s 401K plan account.I have company stocks also in the investment mix. I can’t contribute now coz i am not with the company anymore.
    What are my options?

    Thanks in advance!
    Tom

  79. I have a loan against my 401k that I’m halfway done paying off. I just got a new job that also has a 401k plan. If I transfer it over to the new plan, does the loan transfer as well? If not, how is the loan reconciled? The original amount was about $3000 and I have about $1500 to finish paying.

    • @Rose – Unfortunately, you have to come up with the $1,500 and pay back the loan. Check with your plan administrator to see how much time you have to do this. If you don’t have the money, you have to find a way to get a loan from somewhere else (to repay the 401k loan), or pay the taxes and early withdrawal penalty on the balance.

  80. I have a client who rolled over his 401K into an IRA, and then rolled over the IRA to a Solo 401K. I can’t find anything that says he can or can not do that. What do you think?

    • @Jean – I have rolled over my 401k to an IRA, I have rolled over SIMPLE IRA into an IRA, I have converted a Traditional IRA into a Roth IRA, and I have a Solo 401k — but I have never rolled over an IRA into a Solo 401k. Apparently, it is allowed according to this:

      “Kinds of rollovers from a traditional IRA. You may be able to roll over, tax free, a distribution from your traditional IRA into a qualified plan. These plans include the Federal Thrift Savings Fund (for federal employees), deferred compensation plans of state or local governments (section 457 plans), and tax-sheltered annuity plans (section 403(b) plans).”

      Source: http://www.broadfinancial.com/.....1-k–

  81. I have recently left my employer to pursue graduate education and would like to rollover my 401k to an IRA in order to withdraw from it for education-related expenses. How should I go about this?

    • @Jazzmine – If you can get your education without tapping into your retirement savings, I’d highly recommend you do it that way. You can certainly rollover into an IRA, then withdraw for educational expenses. Only some expenses are eligible. I recommend you take a look at this: http://www.irs.gov/publications/p970/ch09.html and consult with a tax advisor.

    • I’m curious what you ended up deciding about this. I am thinking of doing the same thing, rolling over 401k into IRA to fund graduate school expenses.

  82. hi. i recently was fired from my job of 13 years. i put very little in my 401k, seeing as though i live paycheck to paycheck with my wife and two kids. got another job but behind on bills. car got reposessed and need money now. have 13000.00 vested but cant touch it till feb 2014. can i get a loan or anything? dont care about penaties taxes etc, need money now or will be carless and jobless and eventually homeless. help?

    • @Chris – Sorry about your situation. I am not sure about the details as to why you can’t touch it until Feb 2014. Assuming you can take money out from your 401(k) at that time, you will have to pay taxes and early withdrawal penalty, e.g., you’ll probably lose about 35% leaving you with about $8,500. In the mean time, you can look for personal loan that will get you by until you can get your hand on that money. Here’s an article to help you find a personal loan: https://www.moolanomy.com/4297/the-best-places-to-borrow-money-mriddix2/

      I hope this helps, and good luck!

      • thanks for your time, however my poor credit rating going years back got me into this mess in the first place (paying 399.00 a month for a 2005 toyota Rav 4 wasnt by choice), leaving me untouchable by any lender. the only asset i have is that 401k, which i cant withdrawl until 1 full year after my firing date. im told by them 10% penalty and 20% tax. if i could access that $ now or somehow get a loan (family/friends not an option) with that as the payoff i could buy a reasonable car that i dont have to make an exorbitant monthly payment i may be able to catch up on my bills and get to and from work. any other options for me? im desperate. ive been allowed for the last few days to take a work van home but that wont be allowed to go on much longer at all, and my employer frowns on unreliable transportation. ugh.

      • @Chris – how old are you? Also, what’s wrong with the Rav 4 and why are you still paying for it? Are you thinking about replacing it with a cheaper car?

      • also, yes. acompact car that will last and is good on gas milage. one that doesnt cost an arm and a leg and will eventually let me get my head above water seeing as i wont have a monthly paymnent.

  83. I am currently switching jobs from one Credit Union to another. My new job has informed me that there is a rule governed by the IRS that they cannot start matching funds until after 1 yr. of employment. Is that correct?

    • @Red – I looked at a few places including the IRS web site just to confirm my original understanding. The IRS doesn’t impose the timing of the matching contributions, that’s really depends on your employer. As long as the rule is uniform, they can impose a 1 year delay if that is what they want to do.

  84. I was recently separated from my employer and have a 401k and a supplemental exec retirement plan. I am planning to roll over the 401k to an IRA. The employer is going to send me a check for the supplemental retirement plan..(est 60k).. Question.. What options do I have to minimize the impact of just depositing the check? Should i ask for a Trustee-to-Trustee Transfer (Direct Transfer) to an IRA? Thank you

    • @Tom – Supplemental Executive Retirement Plan (SERP) are non-qualified plan. I believe it works like a big regular paycheck. You’ll have to pay taxes on it and you can use the money however you wish. You can also reduce your tax burden the same way you do with your normal paycheck. If you haven’t max out your 401(k) for the year, you can ask if you could max out your 401(k) using SERP money (assuming you don’t need the money).

      To be sure, check with your HR department for advice.

  85. hi, i am now a single mother without a job but have a 401k from my last job of nearly $9,000. Id like to know if i should cash it all or would a loan feel better for me until i can get a job. My baby needs milk and diapers still plus all my bills are pilling up on me…

    • @viridianne – I’m sorry about your situation. If it’s me in your shoes, I’d take out a loan (e.g., from a bank, or Lending Club) and try to figure out what to do. If you cash out your 401k, you will have to pay taxes and 10% penalty (for sure). You might be able to do a hardship withdrawal, if your former company allows it, but you’d still have to pay taxes.

      Also, are you already getting aids from the government? Another idea is to use cloth diapers (not the fancy ones, just a square piece of cloth). It’s a little messy, but some parents do make them work.

  86. I have 401K account with my company. It is setup in such a way that I can buy/sell any security ( not just few mutual funds ). I liked that setup because it gives you the power to invest in companies that I feel are worth investing. But now, they are moving to a typical 401K setup with just few mutual funds to trade. They are asking us to liquidate the assets and move to the new setup. But I like the portfolio I have built so far. Is there any way I can move those securities to a different account so that I don’t have to liquidate? I like the company and am still employed in that company. Thanks.

  87. Hello,

    My son is a freshman in college, and my daughter is a junior in high school. We did not qualify for any type of financial aid for my son and have approximately three years worth of college expenses (tuition, room and board, etc.) in his PA 529 account. I anticipate that my daughter will probably be attending a more expensive school and that we only have a little less than two years of college expenses in her 529 account.

    We have always been relatively good savers, and have too much money in non-sheltered accounts (a non retirement Fidelity account, a couple DRIP stock accounts, etc.) to receive government aid (it is not that we make an enormous amount of money, just that we are penalized for not wasting it (that’s a whole ‘nother rant, lol)) . These accounts are relatively old and the tax consequences of liquidating them will be hard to absorb.

    I just work part time and have an old 401K account from an old job with approximately $100K in it. I was just reading and it sounds like if I rolled my 401K into an IRA, I am allowed to withdraw money for college expenses. Are the tax consequences the same as say selling some personally held stock? Do you have an suggestions on what would be the best avenue to pursue to liquidate more funds for college expenses?

    Thanks for your advice,
    Donna

    • Hi Donna – Yes, you can rollover to an IRA and withdraw it for educational purpose. You don’t have to pay the early withdrawal penalty, but you still have to pay income taxes. That said, it’s not advisable. If you want to go this route, I suggest you talk to a CPA.

      A better option (in my opinion), is to discuss this with your son and daughter to see if they are willing to spend less for their college education. Also, ask if they are willing to share the money between the two accounts so that both of their 4 years education would be covered. I think this teaches them a much more important life lesson than any college education could.

      Also, this would not put your own retirement in jeopardy.

  88. I have about 5k in a 403b account from an old job I need to move, preferably into an IRA where I have the most flexibility in choosing my investments. I am particularly interested in bio pharmaceutical research and development companies. This money is not crucial to my retirement fund as I will have a generous pension and contribute the max to my 401k annually. Is there a IRA option that will give me control without paying penalties? What questions should I be asking? I need to move the money by 11/30!
    Thank you

    • @Rebecca – talk to your old job about the rollover process. Typically, you can open an IRA account with any broker, then request your former employer to transfer the money from you 403b plan to the IRA account using a direct transfer (trustee-to-trustee). There shouldn’t be any penalty involved, but your former employer or the broker may charge a fee (not typical), and there may be some redemption fee for some of investments held in your 403b plan.

  89. At my retirement age of 66 I would like to continue working but transfer (rollover) my 401k into an IRA on a monthly or quarterly basis. Are there any issues with this?

  90. Hi Pinyo,

    I am a non-resident alien and currently holding H1-b visa. I have around $6k in my 401k.

    If I plan to leave the country for good in the 3 months, what’s my best option?

    I understand that I could roll it over to IRA or cash out,
    1. How much of penalty I should expect if I cash it out.
    2. If I roll it over to a broker, would I be taxed? And says if I roll it over, 10 years later I want to withdraw it, would I get 30% income tax rate + 10% early withdrawal penalty as well?

    Thanks for your time, is a great blog!

  91. I got laid my job in 2008 and i have $3,000 on my 401K with my last employer, I roll over my 401k to IRA to Merrill Lynch ever since. My question is, Is my money gain interest if I just leave it there?

  92. Have 401k plan with securian investment with the company i work for .Want to know when i turn 59 1/2 can i use a in service distriution form to pull all my money out and put it into vanguard investment .if i still work the company /and how long to i have to do this .What is step by step process to do this .And why is it that company you work will not tell about this .Look for your reply

    THANK YOU

    • @Randy – You have to call the plan administrator. In service distribution is an optional feature. If your plan administrator allows it, then you have it.

  93. I currently have a full time job and a part time job. Both jobs have 401ks. I plan on retiring at the end of this year. (Dec. 2014) from my full time job. I will continue to work at my part time job. My question is should I roll over my 401k
    from my full time job (around $78,000) to my part job that has $30,000 in that 401k? I do plan on working part time for awhile.I will be 66 in Sept of this year.

  94. I am 61 years old and just retired. I have about 140K in my 401K and a loan balance of 30K. If I roll from 401K to an IRA how will I be impacted due to the loan balance?

    I would like to use 1,000 a month from my retirement fund until I qualify for Social Security, so what is the best option for that?
    Thanks

  95. Our company is being purchased by another. Will that give me the opportunity to take my 401 to a private IRA?

    Thanks

  96. I’m probably asking the same question as prior commenters but I’ll take a go at it either way. I just got laid of from my job and do not really have much invested in my 401k. I have about $8,500 with a $1900.00 loan still left. I’m interested in rolling it over into an IRA instead of pulling out and paying all the fees. Would I still be able to—-lets say to place it into another company’s 401k (if available, when applicable)later down the line.
    Basically when I do get another job, or would I have to keep it in the invested IRA?

    • Andrea, there’s an article above that covers exactly what you’re asking. Scroll up a little to just before where the Comments begin, and find the heading “Read Another Article.” The second listing under that heading addresses your question (“What Should You Do With Your 401(k) When You Get Laid Off?”).

      In almost all cases, rolling over your 401(k) to an IRA is the best way to go. That way you’ll have pretty much unlimited choices of what to invest in. If you keep the money in the 401(k) plan, you’re limited to the funds offered by that particular plan. When I changed jobs a few years ago, I rolled over my 401(k) from my old employer to an IRA and it’s worked out beautifully.

      Another benefit of going the IRA route is that you’ll probably reduce the annual expenses you’re charged. I rolled my 401(k) to Fidelity, which is one of the low-cost, no-load mutual fund companies. But I also have an IRA account with Vanguard, which is the other major no-load, low-cost fund family.

      The safest way to do the rollover is to call Fidelity or Vanguard and tell them you want to roll your 401(k) into an IRA with them. They will lead you through the process and take care of everything. There’s no charge for any of this service. And by having them take care of the transaction, you’ll keep the IRS happy and won’t trigger any taxes.

      As for your question about possibly putting that money into the 401(k) of a new employer in the future, I wouldn’t recommend that. You’d be limiting yourself to whatever choices that new plan offered.

      You can have as many IRA accounts as you want in addition to a 401(k) with your employer. I have a 401(k) with my current employer, but I also have IRAs with Vanguard, Fidelity, T. Rowe Price, and Interactive Brokers. In my opinion, the more money you can move into the IRAs, the better.

      Good luck!

      Russ

  97. Hi, Pinyo,

    I plan to roll most of my 401(k) with my current employer to a traditional IRA, which is permitted by our 401(k) trustee (John Hancock) for anyone over 62 (I’m 69). I would like to distribute the money to several mutual fund companies.

    In IRS Publication 590, it says you’re only permitted to make one tax-free rollover per year. I want to be sure that sending the money to several different mutual fund companies (simultaneously) will not be considered more than one rollover. Thanks for your help.

    Russ

    • Well, this is embarrassing. I just found the answer to my question. IRS Publication 590 (page 27, next-to-last paragraph) says: “The once-a-year limit on IRA-to-IRA rollovers does not apply to eligible rollover distributions from an employer plan. You can roll over more than one distribution from the same employer plan within a year.”

      Sorry for the false alarm.

      Russ

  98. Pinyo,
    Kudos to you for your replies 2 years after original write up of this story.
    I am not happy with my current IRA Brokerage account. It is too trade restrictive.
    I have around 400k I would like to do an in service transfer to another provider.
    Can I do this now? Can I do this at 55?

    • @AARP Guy – You can transfer your IRA to another brokerage account. That’s not a problem. Talk to your new brokerage firm and they should be able to assist you. In service transfer is only necessary if you’re transferring 401(k).

  99. My wife was let go after 20 yrs.(due to medical) on 9-25-2012. Her employer did not release her 401k, profit sharing and safe harbor until after 12-31-2013. We rolled this over to an annuity. Shouldn’t the funds have been available on 12-31-12?
    He is with Vanguard group and showing a loss of 16% for 2013 year.

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