Rolling Over Retirement Accounts, 401(k)

If you’re planning on moving from one job to another, like I’m going to be doing come Monday, one of the big financial questions you’re going to have to answer is whether you should roll over your retirement accounts (such as a 401k) from your current employer to your new one. Since I have yet to truly investigate the options over at my new job, I will hold off on rolling over my 401k until I’ve had a chance to really weigh my options. That being said, the process is pretty straightforward, though it has a few pitfalls to be wary of, so I felt it was important to understand it now, rather than later.

The Roll Over Process
The process is quite simple: Tell your former employer’s 401k plan administrator that you want a direct rollover (known as a trustee to trustee transfer). Ask the administrator of the new plan who the check should be made out to and then you get 60 days (calendar days, not business days) to deposit it with the new 401k administrator from the day you receive the check.

20%/30% Withholding Pitfall
The biggest trap people fall into when rolling over an account is accidentally requesting that your old employer cut you a check, thinking that you can deposit it with your new employer. If you request a check and it has your name on it, your former employer will be required to withhold 20% for income taxes, 30% if you’re under 55.

Playing Around for 60 Days
Don’t do anything tricky with the money in the 60 days, just walk the check from your old administrator to your new administrator. What you take out from your first plan must be deposited with you new plan. No funny business or you’ll get taxed and penalized.

For more information and other scenarios, involving IRAs and the like, check out this useful SmartMoney article.