How to Handle Rollover From Retirement Plans

Did you just leave your job? Well don’t leave your money just sitting in your old 401k. Take it with you so it’s organized and continues to be invested, earning you megabucks.


So a rollover happens when you want to withdraw your money from your 401k and are moving it to another qualified plan like an IRA or another 401(k). This movement has to happen within 60 days or else there could be dire consequences, like taxes. If you follow the rules the transaction is not taxable even though it is still reportable on your federal tax return. Some distributions, even though they are form a qualified retirement plan, cannot be rolled over. They are as follows:

  1. Nontaxable distribution – This includes your after-tax contributions (like Roth Contributions). In many cases this money needs to be transferred to another like plan, a Roth IRA for example.

  2. Series of Payment Distribution – If your distribution is part of a series of payments made for your life or specified period of time (10 years or more). This is a special type of distributions called a 72-T.

  3. Required Minimum Distribution – Some qualified plans require you take a certain amount of money out at a certain age and cannot be rolled over. You have to pay the tax at some point.

  4. Hardship Distribution – This is obvious. The money goes towards your hardship not rolled over.

  5. Dividends paid on employer securities

  6. Cost of Life Insurance Coverage.

You need to include any amount of your distribution that is not rolled over in income for that year. If your plan pays you an eligible distribution you have exactly sixty days from the date you receive it to roll it over to another eligible plan. If a rollover distribution from an employer sponsored plan like a 401k it is subject to a mandatory 20% withholding, even if you intend to roll it over later. This can be avoided by performing a direct rollover, which means your money goes directly from one institution to another (this includes a rollover to an IRA). If you receive a distribution in the form of a check the best practice is to not deposit it in your personal bank account and instead bring it directly to the finical institution where you are rolling your IRA to.

If you are no age 59 and half or older at the time you receive a distribution any amount not rolled over may be subject to a 10% penalty unless an exception applies. For a list of exceptions, refer to Topic 558. If the distribution is from a SIMPLE IRA you could be subject to a 25% penalty.  

If you need help rolling over your 401(k) or have questions about the process feel free to reach out or schedule a meeting.

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