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401k Rollover Ira - About 401k to IRA Rollover - Why Rollover a 401K to an IRA?, Direct 401K to IRA Rollover

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Traditional 401k plans usually involve an employee saving for retirement by having their savings invested. 401k savings are often sponsored by employers. The income taxes on this money are deferred until the time of withdrawal. Workers choose the money they want paid directly into their accounts, and the employer manages the plan. Some employers even match employee contributions to the plan. However, the time will eventually come when you want to withdraw your money. Many people then choose to put their 401k money into an individual retirement account, an IRA. This is often referred to as a rollover, because the funds go from one account to the other.

Why Rollover a 401K to an IRA?

This can be because you leave a job, you don’t have any confidence in the company or account, or you want to manage your money yourself. The rules governing IRAs are similar to those for 401k accounts, but if you have more than one 401k, it makes sense to put all your money into one account rather have them scattered. Cashing out your account before the age of 59 1/2 means getting hit with financial penalties. However, if you roll this money directly over into an IRA, you avoid taxes and penalties. Also, if you feel your company is, or will be, undergoing a merger or some other kind of situation which may affect your account, putting your 401k money into an IRA means you will have an easier time monitoring and controlling your own funds. In addition, IRAs generally allow more investment choices than 401k accounts.

Direct 401K to IRA Rollover

The easiest way to move your money from a 401k to an IRA is the direct rollover. This essentially means taking all the money from your 401k account and depositing it totally into the IRA. If you have more than one 401k, you will have to do this several times. The 401k account administrator will not withhold income taxes and there should be no penalties involved. Your employer should be able to give you more detailed information about the procedure your company uses to do this. It usually involves filling out a few forms. Sometimes, the money from the 401k is not directly deposited into your IRA but is instead given via a check payable to your IRA account. Deposit your check as soon as possible. The IRS requires that the funds be rolled over within 60 days. There are some circumstances in which this period can be waived, but they are rare.

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