Get 401k Rollover Info

If you are like me you not only need to know all the information involved in doing something, but you also want to see some guidelines so you can assure you are following the correct procedures and are on the right track. It’s easy to question yourself when you are not 100% sure of what you are doing. It is especially scary when you are dealing with your money.

Here are the basic steps you need to take when participating in a direct 401k rollover to a new account. The whole concept of a 401k rollover may sound like a financial nightmare. When it comes to our money we clearly do not want to make any mistakes, but if you are aware of the necessary steps it can make the whole process a lot more calming for you.

1. The first step is deciding where you are going to rollover your 401k. You can open a new account through a bank, brokerage account or a mutual fund. Make sure to contact a few different companies to learn about their terms and fees and get a consultation so that you can weigh your options properly. Do not jump into the water unless you know what’s out there. If you do not feel you can take this on yourself get some advice from a financial planner or tax advisor.
2. Next you want to talk to the company you’ve chosen to roll your retirement money into and ask of them what is required to proceed with a direct rollover. Sometimes you need to have an account already open to move forward and at times the opening of the account may take place at the same time as the rollover. Also make sure to ask them what you need to acquire from or supply to your old provider.
   **Ask your new provider how long this entire process should take assuming things go smoothly. I will explain why in step # 5 submitting the paperwork.
3. The next step is you want to request all necessary forms from your old plan provider. You want to get these papers in your possession as soon as possible so that you can go over them in case you have any questions regarding the forms. In some cases the old provider may require a rollover request form from your new provider. You want to make sure you are aware of all the necessary paperwork upfront so you don’t bounce back and forth and can get answers to all your questions at one time. While you are asking for the necessary forms, you want to check with your old 401k plan to find out what the procedures are so that you can try and avoid and snafus that may occur. Ensure that they have you on file as a terminated employee because if they do not it can hold up the process.
   **Ask your old provider how long this entire process should take assuming things go smoothly. I will explain why in step # 5 submitting the paperwork.
4. Now is the important step of filling out all of the paperwork correctly. It is important that you indicate that this is a direct rollover which will ensure that the funds are paid directly to the new account. If you have any questions with the forms make sure to call the applicable company, whether it’s your new or old provider as not filling in the paperwork correctly could hold up the process. Even if it seems like a minor question like checking a box, make sure to call. There is no such thing as a dumb question when it comes to rolling over your retirement fund. If you do not feel comfortable filling out this paperwork yourself, hire a professional that can help you with this process. Spending a little money now to ensure that this process goes smoothly is a wise investment.
5. The last thing to do is submit the appropriate forms to the correct provider, new or old. Once you’ve filed the paperwork this isn’t a set it and forget it situation. You want to make sure that you follow up with both providers to make sure that everything is moving along smoothly. Sometimes there can be an issue that is holding up the transfer and you won’t even know about it. You have to remember your old provider does not want your money to leave their hands so if there is a hiccup in the process they may not tell you as quickly as you would have liked. You have to be your own advocate in this situation to make sure all things are taken care of. Remember when I told you to ask both your old and new provider how long this process should take? Their answers should be relatively close and if they differ greatly go with your new provider’s time-line as your old provider may say longer because they do not want to part with your funds. If your providers stated that this should take about two weeks contact them halfway through to ensure everything is moving as planned or if there is any required information needed. This is not a case of no news is good news!

In most situations a check for the amount of the rollover will be sent to you via snail mail. Find out how long it will be for you to receive the check so you can keep an eye out for it. If you do not receive it in a certain amount of time you will want to contact the company in case you need to put a stop on the check and have a new one issued. It is your responsibility to deposit this check into your new account. When you receive the check make sure it is filled out correctly and submit it to be deposited with the appropriate forms. Don’t take your time depositing this check as it is not something you want to forget about or worse, lose.

Remember, it is important to stay on top of this process. It is your retirement money that is at stake after all.

Your best option when you’ve severed ties with your previous employer is to opt for a 401k rollover.  A 401k rollover is the best option because you are allowed to transfer your already existing retirement account to another account without being taxed or penalized for doing so. It’s a pretty seamless transition that helps you continue to grow your retirement funds without a big chunk of your money going to the tax man, which would happen if you chose to take a premature distribution also known as a cash distribution before the allotted age of 59 ½.

What happens a lot of the time is people will either leave their money sitting in their current 401k plan with their previous employer or cash out early simply because they do not understand how to rollover their money.  While leaving your money with your previous employer is a better choice than cashing out, if you continue to do this with each job you will have multiple accounts all over the place that are not being managed as properly as they could be. This is why participating in a 401k rollover is the smartest option to choose.

Going with a brokerage account will give you a lot more flexibility with your money over a typical 401k with your employer.  With a typical 401k you have limited options to mutual funds and index funds.  If you do not have a great understanding of investing or you are fine with the options provided to you by your employers 401k plan then this may be a good situation for you.  If you want more investment options then you will benefit from a brokerage account.  With a brokerage account you have the ability to benefit from ETF’s or Exchange Traded Funds.   ETF’s are traded like stocks and you have a lot of options to chose from, thousands to choose from.  They have low expenses and there are no investment minimums which make these an extremely attractive retirement investment.  A brokerage IRA offers a great amount of flexibility not only with ETF’s but you can also purchase mutual funds, individual stocks & bonds and in most cases CD’s.

The first thing you want to do is pick a brokerage firm to rollover your 401k into. There are a lot of financial institutions where this can be completed at, however be sure to check out various discount brokers as they tend to have trades with no or lower commission.  Do some research with various companies and find the best fit for you.  You will receive a form that will authorize the direct rollover of your funds into the newly opened account.

Of course there is a disadvantage to a brokerage IRA, despite the many benefits.  The greatest disadvantage is the cost.  When you have a brokerage account you will be charged a fee every time you place a trade with most brokers, unlike most mutual funds where they have a built-in expense ratio.  Another cost is if you decide to trade an ETF you not only pay a trade commission you also have recurring operating costs built into it. So with the flexibility comes a little bit of a price but sometimes the cost is worth it.  If you want to avoid a lot of these fees research some discount or free brokerage firms.

A great thing about 401k’s is that most companies these days have them.  Why this is good news for you is because if you decide to leave your current employer and your new employer has a 401k plan you will most likely be able to rollover your 401k into their plan easily. Before this used to be a difficult process but with some recent government regulation changes it has become a lot easier to roll your money over.  Not only does this prevent you from having multiple retirement accounts all over the place but you don’t have to mess with the difficulties of managing all of your investments and making sure they are organized properly.

There are some benefits to a 401k rollover to a new employer as opposed to rolling over to an IRA.  This all depends on the options that are in your new employer’s 401k plan.  To invest in an IRA or single mutual fund in most cases you need a minimum investment.  So if you do not have a lot of money in your 401k it will be more difficult to diversify those funds. With a 401k rollover into a new employer’s 401k plan there are generally no investment minimums so it doesn’t matter the amount of money you have in your current 401k.  This means you can diversify a lot easier with a 401k and this is a big benefit!

As stated before there are some drawbacks with a 401k rollover into a new employer’s 401k investment plan.  The main drawback is that you have limited mutual fund investment options.  You are basically stuck with the investment choices that your company selected so there isn’t a lot of flexibility. You won’t have access to any of your funds unless at some point you want/need to take a loan from your 401k, if this is even permitted by your company, or your employment with the company is terminated.  Another drawback is that you could be paying higher fees with a company 401k plan as opposed to an outside plan.  Often times the smaller the company the higher the fees.  Make sure to check out all this information when you get your 401k packet.

If you decide that a 401k rollover to your new employer’s plan is the best option for you, have your current 401k plan transfer your funds directly to your new employer’s retirement plan.  Once the proper paperwork is completed your money is moved directly to your new retirement plan and the money never crosses your path. This is a pretty seamless process and you will be back on your way to growing your tax deferred retirement savings without any interruption.  Ensure that when you directly roll over your 401k funds that you are following federal rollover rules and this will ensure no federal income tax will be withheld from you. Sometimes your old retirement plan will mail you a check and it will be made payable to the custodian of your retirement plan or the trustee.  If you receive a check like this don’t stress about it.  This will still be considered a direct rollover.  You just need to get the check to the institution acting as the trustee of your new retirement plan. If you are unsure of the best option for you or have questions about a direct rollover to your new employer, consult a professional for advice.