How to Roll your 401(k) to an IRA

This article is going to help guide you through the complex transfer process of rolling your 401(k) with a former employer(s) into an IRA (Individual Retirement Account).

After you and your dedicated advisor have determined that a rollover is in your best interest the first item at hand is establishing an IRA, if you do not have one already. Once the account has been established you will then need to instruct the custodian of your 401(k) to action a direct rollover into the institution you have established your IRA with. The custodian will ask you a series of security questions to validate your identity and the legitimacy of the request. They will also need you to confirm that you have received, read, and understood what they refer to as a “Special Tax Notice”. It is important that you discuss this with your advisor during the decision-making process. The custodian of your 401(k) will then liquidate all the holdings in the plan and distribute a check directly to the institution where your new IRA is held. If the custodian of your 401(k) is unable to action a direct rollover to the new institution, they will instead send the check directly to yourself for you to redeposit the funds into your IRA.

If the rollover was an indirect rollover, then you will be receiving the check in the post. Once the check is received, it is important to review the information on the check. The check should be payable to the new institution for the benefit of yourself. Example: Interactive Brokers LLC FBO John Smith. It is important that you endorse the back of the check before sending it to the new institution. Once the check is received by the new institution, they will deposit the funds the following day. Generally, there is a 3-7 business day hold on the funds until the check clears, and the funds have settled. At this point you will be able to have the funds reinvested in a manner that properly reflects your objectives, goals, risk tolerance, and time horizon.

It is important you understand the 60-day rule when it comes to qualified rollovers. The 60-day rollover rule allows you a 60-day window in which to deposit IRA rollover funds from one account to another if you choose an indirect rollover option. As long as you deposit the funds within the 60-day window, then you do not need to worry about taxes. Another rule to be aware if is that you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own. Meaning for every IRA you own, you can only transfer it once every 12 months. IRA rules are consistently changing, and it is important that you have an advisor at hand to help guide you through it.

Do you have a 401(k) with a former employer? Our team of dedicated advisors are here to help guide you through the complex transfer process. If you are interested in learning more about 401(k) rollovers, then please contact us.

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