401k Rollover ? | Retirement Planning

A 401k plan participant leaving an employer typically has four options (and may engage in a combination of these options):

  1. Rollover assets to an IRA

  2. Roll over the assets to his new employer’s plan, if one is available and rollovers are permitted

  3. Leave the money in their former employer’s plan, if permitted

  4. or cash out the account value.

A rollover to an IRA allows you to transfer or “rollover” your retirement money from a previous employer (and sometimes current employer) to an IRA without paying taxes.

Changing jobs?

Have you recently left your job?  Or have you retired?  Are your retirement dollars still at your old employer?  As your life changes, so should your money.  A 401k rollover allows you to move your current retirement money, whether it be in a 401k, 457, 403b, or deferred compensation plan over to your new employer plan or IRA without paying taxes.

Why Rollover your Money?

Options.  Options. Options.

Inside your current 401k, there is a universe of investment options.  Some plans have as few as 10 options, many have 20 to 30 options.  Outside of your current qualified plan, there are over 10,000 different investment options.   These options include stocks, bonds, exchange-traded funds, mutual funds, cd’s, limited partnerships, and professionally managed portfolios.

Do you even know how your current money is invested?  Regardless of the number of options, your investment should be tailored towards attaining your financial goals, your risk tolerance, and time horizon.

Change in Circumstance

Close to retirement?  Divorced?

The majority of Americans no longer have pension plans at work.  It is up to you to provide your own retirement income stream.  Do you know what an acceptable income stream rate is?   Would you like to consolidate your current retirement accounts into one account? Usually, it is easier to keep track of one number on one statement instead of three numbers on three statements.

Is your current beneficiary your ex-wife? Awkward.   I have seen it happen before.   Needless to say, it can be avoided.

Can I roll my Money Over Even if I haven’t Left my Current Job?

Maybe.  Some plans have an “In service” distribution which allows you to roll out some or all of your current funds to an IRA.  Each plan has a different set of rules.  Some are age-based and allow distributions at 59 ½.  Others are based on years of service.  It is always good to check to see if your plan allows this option.

How do I Roll my Money Over?

The first step is establishing a new retirement account, whether it be an IRA or your new retirement plan at your current employer.  Next, you need to contact the current custodian to determine if the money can be rolled over the phone or if you need special paperwork to roll the money over.  Each plan has a different set of rules.  You generally cannot use your new account’s transfer forms to move money out of the plan.

Who Can Help Me?

Contact an independent financial adviser who can help you with the paperwork, but more importantly with a plant to pursue your goals and dreams.  At Wealthnest, we offer our clients a financial physical that looks at your investments, estate planning, insurance, investments, and retirement income plan.

We then present our clients an action checklist with a summary of our recommendations in each of these areas.  We also take a look at everything on an ongoing basis.  Your whole financial life needs to evolve and change as you do.  A long-term relationship with an adviser can help you get there.  As will learning from other people’s mistakes instead of making them yourself.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Investing in securities is subject to risk including the risk of loss of principal. No strategy assures success or guarantees against loss.


Michael McGinley, CFP ®
Comprehensive Wealth Manager | Tax Advisor
Chandler, AZ 85226