| Are you unhappy with your 401(K)? If you are | | | | to do a DIRECT ROLLOVER. |
| like most people, then you too are very | | | | What if you have a 403(b), 401, 457, SEP-IRA, |
| dissatisfied with your 401(K)'s investment options | | | | Keogh, Profit-Sharing, Simple-IRA? |
| and high fees. This is exactly why so many | | | | |
| people decide to move their money from a | | | | These 4 steps will work for just about any |
| 401(K) to an IRA rollover as soon as they leave | | | | qualified retirement plan. |
| their job. Some people even elect to rollover | | | | What if you are under 59.5 years of age and |
| eligible 401(K) balances even while they are | | | | planning to retire early? |
| working. The rollover process has a wide range of | | | | |
| costly landmines for the uninformed. The steps | | | | The Rule-of-55 allows a worker who retires or |
| can be extremely simple or extremely complex | | | | leaves a job after the year in which he or she |
| depending on your plan. The tendency is for | | | | turns 55 to take non-penalized withdrawals from a |
| people to give up at the first road block. You | | | | 401(K). However, if the funds go into an IRA and |
| have to remember that your existing 401(K) | | | | are then withdrawn, prior to age 59 ½, a 10% |
| provider doesn't really want you to move and | | | | penalty would apply. If you are planning an early |
| they are incentivized to keep your account. | | | | retirement after age 55 but before age 59 1/2, |
| If you have already decided that you want to | | | | and if your 401k plan allows it, funding your |
| move your 401(K) plan, here are the two main | | | | retirement needs from your 401k plan may make |
| options you have: 1) Call me or 2) Follow this four | | | | better sense. |
| step process, make copies of everything, keep | | | | What if you are still working? |
| detailed records of dates and names and get | | | | |
| comfortable because it can take a long time, | | | | Your plan might allow in-service withdrawals to an |
| mostly on hold. | | | | IRA Rollover while still employed. You have to call |
| Step 1: Gathering Information and Forms | | | | and ask them if they allow in-service withdrawals |
| | | | | sometimes known as in-service rollovers, |
| Call your former employer's HR department. | | | | AGE-59.5 Rollovers or AGE-65 Rollovers. |
| Find out if they require anything for a direct | | | | Remember to ask if the plan has any provisions |
| rollover. Ask who the plan administrator is. Ask | | | | or restrictions that would discourage such a |
| who the 401(K) custodian is. Sometimes the plan | | | | rollover. |
| administrator is also the 401(K) custodian but not | | | | Okay, by now you should know what you have |
| always. | | | | and what your options are. If you are doing this |
| Call your plan administrator. Ask if you are | | | | alone, you will need to decide between the |
| eligible for a lump sum rollover. If you are no | | | | options at hand. |
| longer working for the sponsoring company you | | | | Step 2: Contact your chosen IRA Rollover |
| should be eligible. If are still working for the | | | | account custodian. |
| sponsoring company or if you are not eligible for a | | | | |
| lump sum rollover, find out if any money is eligible | | | | 1. Ask them if they require anything to accept |
| for a partial rollover or an in-service withdrawal. | | | | the direct rollover. |
| Some company retirement plans have an all or | | | | 2. Open up your IRA Rollover account. |
| nothing rollover policy so you need to ask. Find | | | | 3. If your 401k provider only distributes by check, |
| out how much of the eligible balance to rollover is | | | | ask them how they would like the check to be |
| pre-tax versus after-tax. If you have any | | | | made out for a DIRECT Rollover. |
| after-tax money, you need to decide if you want | | | | Now you should have your new account ready to |
| that money to be sent directly to you in a | | | | receive your direct rollover. |
| separate check (over 59.5 years old) or if you | | | | Step 3: Execute the Transfer. |
| want it to be rolled over to the IRA. If you roll it | | | | |
| over, be sure to keep track of this amount since | | | | 1. Submit the direct rollover forms and required |
| it is your cost basis which means you shouldn't | | | | documentation to the custodian or plan |
| pay taxes on this money since you already did. | | | | administrator, which ever applies to you. |
| You also might want to consider converting the | | | | 2. Be sure to provide them with your new IRA |
| after-tax portion to a ROTH IRA though that | | | | Rollover account number. It should be on your |
| decision involves a much more in-depth decision | | | | check or part of the electronic transfer request. |
| process. | | | | 3. It's important to avoid any receipt of the funds |
| Call your plan custodian. Be sure to ask if you | | | | that might trigger an unanticipated tax |
| have any balance in a ROTH 401(K) or if it is all in | | | | consequence. The DIRECT ROLLOVER |
| a Regular 401(K). If you do have any funds in a | | | | (Trustee-to-Trustee) transfer minimizes the |
| ROTH 401(K), you will want to do a direct rollover | | | | chance of a taxable event occurring during the |
| for that balance to a ROTH IRA. Be sure to ask | | | | transfer process. |
| if there will be any fees incurred. Fees vary and | | | | 4. The direct rollover typically takes two to six |
| may include transfer fees, closing fees, fund | | | | weeks though it can be even longer depending on |
| redemption fees. If there will be fees, ask if there | | | | the responsiveness of your 401(K) provider. |
| is any balance you can rollover without incurring | | | | 5. You should periodically contact the HR |
| such fees. Depending on the type and extent of | | | | department, the custodian or the administrator to |
| the fees, you might be able to get your new IRA | | | | verify progression. |
| rollover provider to cover the cost. If the fees | | | | 6. If you get a check in the mail, make sure the |
| are too high, you need to figure out what is | | | | balance is what you had expected and make sure |
| causing the fees and if there is anything that can | | | | the check was made out correctly. Remember, |
| be done. For instance if there are short-term | | | | the check should not name you directly but should |
| redemption fees on the funds, you need to stop | | | | name the new custodian for your benefit and |
| contributing to these funds and wait until the | | | | include the new account number. |
| redemption period expires. | | | | 7. You will have 60 days, including weekend and |
| You need to find out if there are any surrender | | | | holidays, from receipt to make the deposit into |
| penalties. If there are, ask if there is any balance | | | | your new account. Remember to request that |
| you can rollover without incurring the penalty. | | | | your new account number be included on the |
| Typically you will find this issue with 403(b) | | | | check or the electronic transfer. |
| accounts that have selected the annuity option. | | | | Warning - If the rollover check is payable to you, |
| For example, one specific annuity option for 403b | | | | the firm must withhold 20% of the distribution. As |
| plans requires about 10 years for the participant | | | | a result, you will get a check for only 80% of |
| to completely rollover their balance without | | | | your 401(K) balance. This means you will need to |
| incurring the surrender penalties. So you might | | | | come up with the remaining 20% from your own |
| only be able to do a partial rollover today and | | | | pocket to deposit into your IRA rollover. You will |
| have to wait for the remainder until the surrender | | | | receive credit for the taxes that were withheld |
| penalties expire. | | | | but not until you file the following year. This could |
| If you are still working and planning to do an | | | | leave you short on cash, out of the markets or |
| in-service withdrawal, you need to ask if there will | | | | providing a sizable interest-free loan to the |
| be restrictions for your participation moving | | | | government. To avoid this 20% headache, you |
| forward. For example, some plans allow in-service | | | | need to complete a DIRECT ROLLOVER |
| withdrawals but will prohibit you from contributing | | | | (Trustee-To-Trustee) which essentially means you |
| to the plan for the next six months. If there are | | | | never get the money in your name but rather |
| restrictions, you need to weigh the rollover | | | | FBO (For the Benefit Of), For Your Benefit. |
| benefit against the restrictions moving forward. | | | | Step 4. Once the money is in your new IRA |
| Next, let them know you want to do a DIRECT | | | | Rollover: |
| ROLLOVER (Trustee-to-Trustee). Ask them what | | | | |
| the options are for implementing a direct rollover. | | | | 1. You will likely have to transfer cash from your |
| Some will be able to do an electronic transfer | | | | 401(K) so you should have an idea of what you |
| while others will only be able to issue a check. It is | | | | are going to do with the money once it is |
| always best to make it a DIRECT ROLLOVER | | | | deposited. |
| which means the money is never titled in your | | | | 2. Contact your old 401(K) custodian and confirm |
| name. The ideal option would be to transfer the | | | | that they show a zero balance for your account. |
| funds directly to your new account electronically. | | | | 3. Expect a form 1099R from your old plan. Hold |
| Ask if they require a Letter of Acceptance and | | | | on to it. Even though you don't have a taxable |
| ask if it needs to be notarized or certified. Ask | | | | event, you will need to show the rollover on your |
| if they require notarized spousal consent. Ask | | | | next annual tax return. |
| for the direct rollover forms and any paperwork | | | | |