Can I Rollover One 401k to Another? A Comprehensive Guide

Learn how easy it is rollover one 401K into another without incurring taxes or penalties. This comprehensive guide covers all aspects of rolling over one 401K into another.

Can I Rollover One 401k to Another? A Comprehensive Guide

Are you considering transferring your 401(k) funds from one plan to another? If so, you're in luck! Direct reinvestment from the 401(k) plan gives you the option to transfer funds from your old plan directly to your new employer's 401(k) plan without incurring taxes or penalties. This article will provide a comprehensive guide on how to rollover one 401k to another, including the advantages of doing so, the different options available, and the steps you need to take. The easiest 401(k) plan reinvestment option is to ask the old plan administrator to transfer your balance directly to your new account. This is called direct reinvestment of the 401(k) plan, and it frees you from having to worry about tax consequences or early withdrawal penalties. Many companies allow a simple transfer of assets from one 401(k) plan to another.

One of the advantages of this option is that you won't incur taxes or penalties and your money will continue to increase with deferred taxes. The option is especially attractive if your new company offers better investment options than your old company. Plus, you'll only have to track one set of account statements. In almost all cases, it's important to opt for what's known as direct reinvestment if you want to avoid being imposed unnecessary penalties or charges. While that amount isn't included in the check you receive, you must provide it from another source if you want the total amount of your reinvestment to still not include deferred taxes.

Therefore, you can contribute additional money to your cumulative IRA the year you open it, up to the allowable contribution limit. If your traditional 401(k) plan allows direct transfers to a Roth IRA, you can transfer assets from your traditional 401(k) to a new or existing Roth IRA. Also remember that even if your new employer accepts transfers, you may have to wait until the next enrollment period or sometimes until you've been at work a full year to transfer your assets. You can make a direct, tax-free reinvestment by transferring money from an old employer-sponsored retirement account to a traditional tax-deferred IRA or to qualifying business plans, including new 401(k) or 403(b) plans. An indirect reinvestment usually includes having your previous employer withhold 20% of the total amount of outstanding taxes, which will then be refunded as a tax credit the following year. Like a reinvestment from a 401(k) plan, you should be able to transfer your money through a direct reinvestment or through a manual transfer.

While you may already have your own IRA at a brokerage firm or robo-advisor, if you can only indirectly transfer your 401(k) to that account, it's probably best to select one of the direct reinvestment options. You can opt for indirect reinvestment to take advantage of a short-term loan if you are temporarily between jobs or if you are waiting for your old home to close to make a down payment on a new one. Once you've made the decision, opened a new retirement account (if needed) and contacted the financial institutions involved, if you can make a direct reinvestment, then your work will be almost done. In the case of an indirect reinvestment, a check or deposit will be issued to you directly and, in that case, it will be your responsibility to deposit that money (plus the 20% you have to pay) into the new account within 60 days. The key difference between a traditional IRA and a Roth IRA is that the former is financed with pre-tax money, like a traditional 401(k), which allows you to make a direct reinvestment without having to pay additional taxes on the year's income. In some cases, your former employer's benefit provider may only allow transfers to an account at their own institution or to certain types of external accounts.

However, if you decide to make a reinvestment, you'll need to complete the process within 60 days if you receive a check for your retirement funds.

Erica Nicky
Erica Nicky

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