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401(k) & IRA Rollovers
A balance you built over years at a company doesn't have to sit where you left it. For private-sector savers and the recently retired, this is where the rollover questions get answered plainly.
Your four options
Three of them keep the balance working. The fourth is the expensive one, and it is the one people most often choose by accident.
Most plans let a former employee stay put, provided the balance clears a threshold the plan sets. Nothing breaks and nothing is triggered. What you give up is attention: you are now a former employee holding an account that nobody at that company will ever remind you about.
If the new plan accepts transfers, this puts everything under one roof, which makes the balance easier to track and easier to manage later on. The trade is that you inherit the new plan’s menu, and plans vary a great deal in what they offer and what they charge.
An IRA belongs to you rather than to an employer, which usually means wider choice and no dependence on a company you no longer work for. Moved directly between custodians, the transfer is not a taxable event and nothing is withheld.
Taking the balance in cash closes the account and produces the most expensive outcome on this list. The plan is required to withhold 20 percent for federal taxes before the money reaches you, the amount is taxed as ordinary income for that year, and if you are under 59½ an additional 10 percent generally applies on top of that.
New to this? Start with what a 401(k) rollover actually is. If you worked in California education at any point, the educator side of this has its own rules.
A few quick questions will point you to the most useful next step for the balance you left behind.
The cost of doing nothing
Leaving a balance where it sits is a decision, even when it does not feel like one. Here is where it usually surfaces.
One
A former employer has no reason to check whether an old account still suits you, and neither does the plan itself. Accounts left behind tend to keep whatever settings they were given on the day someone opened them, sometimes decades earlier.
Two
The beneficiary named on a retirement account governs where that money goes, and it is not overridden by a will. Forms filled out at a job you left years ago are one of the most common things found out of date, and they are one of the easiest to fix.
Three
Once required withdrawals begin, each account carries its own rules for how the amount is worked out and where it may be taken from. Three scattered accounts means three sets of paperwork every year, at the age when people least want it.
Common questions
Not if the balance moves directly from the old plan to the receiving plan or IRA. A direct transfer is not a taxable event, nothing is withheld, and no deadline starts running. The tax problem appears when the money is paid to you first. In that case the plan must withhold 20 percent for federal taxes even if you fully intend to redeposit it, which means you have to replace that 20 percent out of your own pocket to complete the move without a shortfall. The safest instruction, in almost every case, is that the check should never be written to you. The mechanics are laid out here.
If the money was paid to you, 60 days from the day you received it. Miss that window and the amount is generally treated as a withdrawal, taxed for that year, with a further 10 percent applying if you are under 59½. There is no equivalent clock on a direct transfer between institutions, which is the main practical argument for using one. Sixty days sounds generous until a check arrives while someone is between jobs, moving house or dealing with a family matter, which is exactly when this tends to happen.
This is worth pausing on before anything moves. There is an exception that lets you take money from an employer plan without the extra 10 percent early withdrawal charge if you separated from service in the year you turned 55 or later. It applies only to the plan of the employer you actually left, and it does not follow the money into an IRA. Rolling the balance over first can permanently give up that access between 55 and 59½. If there is any chance you will need to draw on this money in those years, work out the sequence before you start the paperwork, not after.
Generally yes, once you have left the employer, and the direct transfer rules work the same way they do for a 401(k). The details differ by plan type and by plan document, and a 457(b) offered by a government employer carries its own particulars, so the specific plan paperwork is what governs. If you spent part of your career in California public education and part outside it, you may be holding several of these at once, which is a common situation and a solvable one. The educator side is covered here.
Answer a few quick questions so we can better understand your retirement goals and how we may be able to help.
Question 1 of 5
Select every one that applies. Many people have more than one.
Question 2 of 5
There’s no wrong answer. It only changes what’s most useful to discuss.
Question 3 of 5
Your 403(b), 457(b), 401(k) and IRA balances added up, and a ballpark is fine. Not including your pension.
Question 4 of 5
Question 5 of 5
Last one.
Based on what you’ve shared, a conversation may be more helpful than continuing to research on your own.
Good instinct to be looking into this now. The questions that come up most at this stage are already written down and waiting for you, so you can take your time with them.
Everything here is yours to keep. When the time feels right to talk it through, you’ll know exactly where to find us.
The four options, what each one costs, and the withholding trap that catches people every year.
Moving retirement savings from one account to another without creating a tax bill. Here's what a rollover actually is, where the money can go, and the two things people mistake for one.
