You might know it as the task that’s been on your to-do list for … well, way too long. Whatever the case may be, rolling over a 401(k) account is an important part of the retirement planning process. Rolling over your 401(k) can help you gain greater control over your funds and keep your retirement savings better organized, among other things.
Rolling over a 401(k) retirement account from an employer might feel like tricky business. While there are rules to follow and consequences if you don’t, the right steps can make the process smooth sailing.
Why roll over your 401(k) to an IRA?
It might be tempting to leave your funds where they are, but it can be helpful to conduct a rollover — in fact, that consolidation might simplify your retirement planning for you. Here is a snapshot of reasons to roll over your 401(k):
- Having multiple 401(k)s can be unnecessarily difficult to keep track of. Consolidate your old 401(k)s into one place to stay organized.
- Fewer accounts mean more flexibility to adjust and diversify based on changes in your risk tolerance.
- Your old 401(k) could be costing you extra through higher fees.
- You could have a wider range of investment choices through other retirement account options.
How do you roll over a 401(k) to an IRA?
During our last Ally Invest Digital Conference, Callie Cox, Ally Invest’s senior investment strategist, boiled down the 401(k) rollover process to three steps. Watch this two-minute video, where she breaks it down:
1. Choose what type of account you want to roll your old fund into.
You generally have two choices:
- A new 401(k): Rolling over into your new 401(k) would enable you to see all of your retirement money in one place.
- An IRA: Rolling over into an IRA can give you more flexibility and investment options.
Expert Tip: Don’t forget about checking in on any fees associated with your new account.
2. Call your old 401(k) provider and get all the necessary forms together.
For example, you might need the distribution forms for your old provider. It’s important to check because it can be different depending on the provider.
Pay attention to what type of rollover your old provider offers. You’ll likely see one of two methods:
- Direct Rollover: Your money is transferred directly from your old account to your new account.
- Indirect Rollover: The old provider sends you a paper check, which you send to your new provider. With this method, you’ll want to make sure you send the check to the new provider within 60 days, otherwise you might get hit with a penalty fee or extra taxes.
3. Call your new provider and determine how you can start depositing funds into your new account.
The process of depositing money into your account can be different for different providers, so you want to check to be sure you’ve got the right steps nailed down as you look into ways to fund your IRA. This is also a good time to confirm that your old fund has rolled over into the new account properly. It’s always a good idea to double check!
As you can see, 401(k) rollovers don’t have to be the headache you might have imagined them to be. The main point to keep in mind is that different providers can require different processes, so it’s best practice to contact them to confirm you have everything you need. Otherwise, just follow these three steps when going through a 401(k) rollover, and you should have the basics down for a smooth rollover experience.
Looking for an IRA to roll your retirement fund into?
Ally Invest does not make recommendations or offer investment, financial, legal or tax advice. Please visit IRS.gov for eligibility requirements for all IRA account types. If you have additional questions regarding taxation of an IRA account, consult a tax professional.