When Can I Rollover My 401k

You can typically roll over a traditional 401(k) account when you change jobs, retire, or turn 59½. In a rollover, you transfer the funds from your old 401(k) plan to a new account, such as an individual retirement account (IRA) or a 401(k) plan with your new employer. Rollover options vary based on your specific situation and account types. It’s crucial to consider tax implications and seek guidance from a financial advisor if needed. Remember, rollovers aim to maintain tax benefits and continue retirement savings growth.

Age 59½

Once you reach age 59½, you can roll over your 401(k) to an IRA or another employer-sponsored retirement plan without paying a 10% early withdrawal penalty. However, you will still owe income tax on any money you withdraw from your 401(k) before age 59½. If you are not yet age 59½, you may be able to avoid the early withdrawal penalty by rolling over your 401(k) to an IRA and then waiting until you are age 59½ to withdraw the money.

Benefits of Rolling Over Your 401(k)

  • Avoid paying a 10% early withdrawal penalty
  • Have more investment options
  • Consolidate your retirement savings

Things to Consider Before Rolling Over Your 401(k)

  • Fees: There may be fees associated with rolling over your 401(k). Be sure to compare the fees charged by different financial institutions before making a decision.
  • Taxes: You will still owe income tax on any money you withdraw from your 401(k) before age 59½. If you are not yet age 59½, you may be able to avoid the early withdrawal penalty by rolling over your 401(k) to an IRA and then waiting until you are age 59½ to withdraw the money.
  • Investment options: IRAs offer a wider range of investment options than 401(k) plans. This can be an advantage if you want to have more control over your investments.
  • Required minimum distributions: You must begin taking required minimum distributions (RMDs) from your IRA or 401(k) once you reach age 72. The amount of your RMD will depend on your age and account balance.
AgeCan you rollover your 401(k)?
59½ or olderYes
Under 59½No, unless you roll over the money to an IRA and wait until you are 59½ to withdraw it

Separation from Employment

One of the most common triggers for a 401(k) rollover is separation from employment. This can occur for a variety of reasons, such as:

  • Voluntary resignation
  • Involuntary termination
  • Retirement

When you separate from your employer, you have several options for your 401(k) account:

  • Leave the money in the plan. This is generally not recommended, as you will continue to pay fees and may not have access to the same investment options as you would with a rollover.
  • Roll over the money to an IRA. This is a good option if you want to maintain control over your investments and have access to a wider range of investment options.
  • Roll over the money to a new employer’s plan. This is a good option if you are starting a new job with a comparable 401(k) plan.
  • Cash out the money. This is generally not recommended, as you will have to pay income tax and a 10% early withdrawal penalty if you are under age 59½.

If you decide to roll over your 401(k) account, you will need to complete a rollover form provided by your new account provider. The rollover process can take several weeks to complete.

Rollover OptionAdvantagesDisadvantages
Roll over to an IRA
  • Control over investments
  • Wider range of investment options
  • No fees
  • May not be able to roll over all funds
  • Required minimum distributions at age 72
Roll over to a new employer’s plan
  • Continue to defer taxes on earnings
  • No fees
  • Employer may match contributions
  • May not be able to roll over all funds
  • May have limited investment options
  • Vesting period may apply
Cash out the money
  • Immediate access to funds
  • Pay income tax and a 10% early withdrawal penalty if under age 59½
  • No tax deferral on earnings

When to Rollover Your 401(k)

Rolling over your 401(k) can be a smart financial move, but it’s important to know when it’s the right time to do so. Here are some common life events that trigger 401(k) rollovers:

Change of Employers

When you leave a job, you have the option to roll over your 401(k) balance into an individual retirement account (IRA) or another employer-sponsored plan. There are several reasons why you might want to do this:

  • Investment options: IRAs typically offer a wider range of investment options than 401(k) plans.
  • Fees: IRAs may have lower fees than 401(k) plans.
  • Control: With an IRA, you have more control over your investments and can make changes as needed.

Be aware that there are also potential drawbacks to rolling over your 401(k). For example, you may lose access to employer matching contributions and certain loan options. Consider your individual circumstances carefully before making a decision.

EventRollover Option
Change of EmployersIRA or new employer-sponsored plan
RetirementIRA, Roth IRA, or annuity
Financial hardshipMay be eligible for hardship withdrawal

When Can You Rollover Your 401(k)?

There are several circumstances in which you can roll over your 401(k) funds to another retirement account, such as an IRA or another 401(k) plan. Some of these circumstances include:

  • When you leave your job: You can roll over your 401(k) balance to an IRA or another 401(k) plan when you leave your job, regardless of your age or employment status.
  • When you retire: You can roll over your 401(k) balance to an IRA when you retire, regardless of your age or employment status.
  • When you change jobs: You can roll over your 401(k) balance to another 401(k) plan when you change jobs, as long as the new plan accepts rollovers.
  • When you are disabled: You can roll over your 401(k) balance to an IRA if you become disabled, as defined by the IRS.

There are also some circumstances in which you cannot roll over your 401(k) funds, such as:

  • When you are under age 59½: You cannot roll over your 401(k) balance to an IRA if you are under age 59½, unless you meet one of the exceptions described above.
  • When you have outstanding loans: You cannot roll over your 401(k) balance if you have any outstanding loans from the plan.

Disability

If you become disabled, you may be able to roll over your 401(k) balance to an IRA. To qualify for this exception, you must be:

  • Unable to engage in any substantial gainful activity because of a physical or mental impairment.
  • Expected to be unable to engage in any substantial gainful activity for a period of at least 12 months.

If you meet these requirements, you can roll over your 401(k) balance to an IRA at any age, without paying the 10% early withdrawal penalty.

Table of Rollover Options

EventRollover Options
Leave your jobIRA or another 401(k) plan
RetireIRA
Change jobsAnother 401(k) plan (if the new plan accepts rollovers)
Become disabledIRA

Hey there, folks! Thanks for hanging out and learning about the ins and outs of 401(k) rollovers. I know it can be a bit of a brain-twister, but hopefully, this article cleared things up. Just remember, every situation is different, so if you’re not sure what to do with your 401(k), don’t hesitate to chat with a financial advisor. They’ll help you make the best decision for your financial future. In the meantime, keep your eyes peeled for more awesome financial knowledge bombs! Until next time, stay savvy!