May 23

Tip for Moving Your 401(k)

filling out paperworkThe days of working at the same employer for 30+ years then retiring is fading as fast as corporate pensions. If you've switched jobs recently, there are many important decisions you need to make regarding your 401(k). One of the options is to roll your balance into an Individual Retirement Account [IRA] for the following reasons:

1) More (and better) investment options. Instead of just 12 or so choices given to you by the administrator of your company's plan, you can chose between, among other instruments, thousands of mutual funds or individual stocks.

2) Flexibility in estate planning. You can name more than one beneficiary, have contingent beneficiaries, and in most cases, name someone who isn’t your spouse as a beneficiary. In addition, beneficiaries of an IRA aren’t required to take a lump-sum distribution and pay taxes at that time, so the money can continue to grow tax-deferred as a “Stretch” IRA.

3) Immediate access to your money. There are no restrictions on when you can take money out of your IRA; the only drawback is that you will pay federal and state income taxes on the withdrawal, and in most cases a 10 percent early-distribution penalty if you are under age 59½.

4) Penalty-free withdrawals. In certain circumstances, you may be exempt from the 10 percent early-distribution penalty (i.e., if withdrawals are used for higher education expenses for yourself, your spouse, or your children or grandchildren). You can also make penalty-free withdrawals ($10,000 lifetime maximum) from your IRA to put toward a principal residence that is a first-time home purchase for you or your spouse, child, grandchild or ancestor.

5) Manage your accounts in one place. You can move your 401-K to an IRA in the same online brokerage where you have other accounts. With some brokerages, such as E*Trade, you can consolidate all your bank accounts and brokerage accounts in one place. Financial firms tend to provide better service and higher interest rates on deposits if you have more assets with them.

One tip to protect yourself if you choose to roll money from your 401(k) over to an IRA: make sure it’s a direct trustee-to-trustee rollover from your employer’s plan to your designated IRA account. This way, you won’t be required to pay federal and state income taxes on the transfer; taxes will be due only when you withdraw the money. If you're transferring a 401-K to an IRA in an online brokerage, just call the brokerage and ask them how to handle the transfer to ensure there's no tax liability.


  • Yes, you can roll 403's 401's and 457's in and out of one another. You must first find out if your current plan will accept the rollover. Not all 457's for example are fully quallified. You can get any paperwork required from your trustee.

    Aug 08
  • The penalty is between you and the IRS. In some circumstances you can avoid the penalty if your company allows retirement at 55. It must be in your plan guidlines. You can find this in your Summary Plan Descriptor. Otherwise, 59 1/2 is the magic age to avoid the penalty.

    Aug 08
  • Not sure what you mean by "where can i find its paperwork," but there's nothing to keep you from moving a 403b into another qualified plan anymore. It used to have to stay designated as 403(b), even if you were "rolling it over," now it can be commingled with other assets in an IRA rollover.

    The one major reason one might *not* want to roll money out of a 401(k) - and this varies a little by state - is that monies in 401(k)s often have stronger creditor protection than those in IRAs. Might be a good reason to leave it if you work in a high-litigitation risk industry. Seems that there might have been some litigation to extend this protection to IRAs, but not sure the status of that. In any case, something to get a good answer on for your particular state.

    May 29
  • I read somewhere that "Before the new law, investors could only transfer their retirement savings from one 403b plan to another 403b plan. However with the new law, the investors can transfer their funds from a 403b plan into a 401k plan, other 403b plans, 457 government plans, IRA or even profit-sharing plans with employers or other investors."

    does anyone know exactly how it works? where can i find its paperwork?

    May 27
  • A great place to investigate the options AND roll over your 401(k) is From their website:
    "Most people fail to roll over their 401(k), 403(b), or other company retirement plan money to an IRA when they change jobs. Or worse, they take the cash and lose up to 40% in taxes and penalties. In fact, your employer will likely cash you out automatically if you don't take action.

    The smart choice is to take control of your money and roll over your savings directly to an IRA. RolloverMarket handles rollovers from all qualified plans—401(k), 403(b), 457 and pensions.

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    May 24
  • Where are the reasons NOT to rollover??
    I thought if you "RETIRE" at 55 there is no penalty for withdrawals from a 401k @ work?? Other reasons??

    May 23