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401k Rollover Rules

Updated on July 16, 2009

401k Rollover Rules – How You Can Avoid Penalties and Withholding Policies

A retirement savings account rollover is a procedure that takes place when contributed funds from one retirement plan are transferred into another retirement account. In actual fact, the usual rollover circumstances is; if a taxpayer was employed by another company, he or she will most likely rollover the current 401k account to his or her new company sponsored retirement plan. If you have the same scenario, the most efficient way to carry out the rollover is to learn about the 401k rollover rules and policies.

401k Rules

Rules of a 401k Rollover

You don’t need to be burden by your situation because your previous or current employer’s 401k account administrator will assist you in making the transfer. But, you should take each step carefully; uncalculated stride might let you incur tax penalties without your knowledge. This may occur because the Internal Revenue Service has strict policies to any form of retirement account rollover. You should not let them perceive your 401k rollover as a lump sum withdrawal of your contributed funds.

401k rollover rules take account of the 60 days redeposit period. When 401k rollover takes place, you carry out distributions or withdrawals of your assets that may include mutual funds, common stocks, bonds or even cash. You should be able to make contributions on all or part of them into another 401k plan of another financial institution, to an IRA or to a qualified retirement account. As a general rule, if you have not yet reached the qualifying age of 59 ½, then all of the contributions you’ve made to your 401k account on pre-tax basis are eligible for a rollover.

401k Rollover Advice

When you make a direct 401k rollover, the previous administrator of your 401k plan will normally require you to completely fill out some forms. These most of the time, let you describe the amounts you’ve withdrawn and the account information of your new chosen retirement savings plan where the retirement funds will transferred or deposited.

It’s important to note that the direct 401k rollover is the easiest way to transfer your money from your current 401k account into another retirement savings plan. Through direct rollover, your contributed funds are moved from one financial body to another institution. This type of transfer inhibits tax penalties and withholding policies.

Additional 401k Rollover Rules

If you are below 59 ½ years of age and would like to get your money out of your 401k plan, you should be aware of the tax penalties and withholding obligation you’ll face. A 401k IRA rollover, which is paid directly to you, will give you a mandatory withholding penalty of 20% even if you plan to rollover the money into a new retirement account afterwards. The IRS prohibits and highly discourages an early withdrawal, that’s why performing untimely distributions will grants you several sticky situations.

If in doubt, you should talk to your retirement savings plan administrator, so you can better understand all of the 401k rollover rules. Keep in mind that a 401k rollover is an efficient approach and method to manage your retirement savings very well - do your best to accomplish it the right way.

Know the 401k Rules


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