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It's Actually Not That Hard

Quick Summary

  • Rolling over your 401(k) into an IRA is relatively simple, but may require some paperwork.
  • Pick where you want to move your money. This is mostly a brokerage company, but could also be a bank or other financial institution.
  • Once you choose where you want to move your money, you can start the process with that company. Procedures differ, but any brokerage will help you through the steps.

Introduction

Employer-sponsored savings plans like a 401k can be a great deal. The automatic paycheck deduction makes it easy to save. Many companies will also match your savings, giving you what is basically free money. But when you leave a job these benefits go away and you may want to consider an IRA Rollover.

Moving your 401k to an IRA (or even a Roth IRA) isn’t too hard. We’ll review these questions:

  1. Do you want to rollover?
  2. Where do you want your IRA?
  3. How do you initiate the rollover?
  4. What happens next?

1) Decide to Rollover

One of the best ways to save for your future is taking advantage of your workplace retirement plan- which is entirely portable and transferable should you switch jobs. In a process known as a rollover, you can move your retirement savings from your workplace retirement plan, 401(k) into an Individual Retirement Account (IRA) where you’ll have a wider selection of investment choices and typically lower fees than a 401(k).

We cover this topic in more detail here, but once you leave a job, doing an IRA rollover can make a lot of sense. There can be three main benefits:

  1. Simplified record keeping. If you have multiple 401(k)s from different past employers, it can be a hassle to keep them organized. Combining them all into one IRA can make your life significantly easier.
  2. Lower fees. Frequently, you can reduce your expenses (and therefore raise your return) by moving to an IRA.
  3. Better investment choices. Plenty of 401(k)s have good investment options, but some are pretty limited in how you can invest your money. IRAs have virtually unlimited investment choices, but also offer some one-stop shops like Lifecycle funds that automatically balance for you.

2) Open an IRA Account

Because 401(k)s and IRAs have the same tax characteristics, you’ll want to roll your 401k into an IRA. Once you have an IRA set up, you can direct your plan administrator to rollover your funds into that IRA.

Where to rollover

If you already have an existing IRA account that you are happy about, it is easiest to move your 401k money there. Otherwise, you’ll need to open a new IRA somewhere. This can be done at most any brokerage and a number of banks, but some of the big name brokerages like Fidelity, E*Trade or Merrill Lynch offer lots of choices combined with low costs.

Set up the new account

Setting up an account online has never been easier. For example, Fidelity’s online process helps determine which IRA is right for you, prompts you for exactly what information is needed and can even pull your information based on answers.

3) Initiating the Rollover

To actually transfer the money from your 401k into your IRA, you will need to contact the plan administrator to start the rollover. Sometimes the brokerage will contact them for you and give them the information that they need. Either way, your brokerage company will provide you with the details of how the check should be made out and where it should be sent.

It is worth noting that there are both direct and indirect rollovers. A direct rollover is where the money leaves your 401(k) and goes straight to your IRA. When this happens, there are no taxes owed and no additional paperwork that needs to be filed.

An indirect rollover is much more complicated. Your 401k administrator will make a check payable to you, but minus 20% tax withholding. You then have 60 days to deposit the money into an IRA. We discuss this process and the paperwork required here, but, where possible, a direct rollover is much better.

4) What Happens Next?

That’s it. Your funds will be transferred to your new account and invested according to your choices. You’ll all done. Nice job.

Compare Popular IRA Providers

Provider Fidelity Investments Merrill Edge Betterment
NameFidelity Roth IRAMerrill Edge IRABetterment IRA
DescriptionGet a range of investment choices, tax advantages and 1:1 help with a Fidelity Roth IRA Learn MoreGet up to $600 when you invest in a new Merrill Edge IRA. Plus one-on-one guidance, actionable insights and easy-to-use tools. Learn MoreRollover a 401(k) or IRA or open a new IRA. Low fees, Rollover Concierge, personalized portfolios, and access to licensed financial experts. Learn More
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