How to Rollover Your 401k

Pat yourself on the back if you’re leaving a job and have questions about your 401k. If you do, at some point you took the time to establish a 401k account at work. By doing so, a portion of your pay was directed into a tax-deferred vehicle which allowed you to accumulate funds, presumably for retirement. You didn’t have to save through the 401k, but you did because you either understood its benefits, or heard it was a good idea. A 401k rollover refers to moving a 401k plan from a former or current employer into either an IRA or another qualified plan.  IRA stands for “individual retirement account” and has similar rules to the 401k. You are most likely not required to consolidate your retirement accounts into an IRA but many people choose to do so for a variety of reasons. If you contribute to several 401k plans in your lifetime, you may find yourself doing a rollover more than once. Let me explain further some reasons why one might decide to do this.

Your first inclination may be to cash out your existing 401k funds. Think twice before taking this option. You’re most likely going to get penalized if you take a withdrawal from your funds prior to age 59½. Assuming you were contributing to a traditional 401k plan (and not a Roth 401k) you’d be responsible for paying the tax on the money which you put into your plan plus a 10% early withdrawal penalty. There are a few exceptions to the penalty, but they are few and far between and usually the result of a severe hardship need. Part of the reason IRS rules are strict regarding early withdrawals is that they are strongly discouraged. Most people will need the money in their 401k to be a supplement to other income sources during retirement.

Something else to consider is the convenience and ease of management that comes along with consolidating your accounts. If you receive statements from multiple fund companies, you might be less inclined to review each one and simply add them to your “financial stuff” file, which you may not review often enough.  For some people, consolidating accounts will improve the ability to manage investment activity. It may lead to potentially beneficial financial practices such as rebalancing your portfolio and updating your asset allocation more frequently.  Because your risk tolerance may change at various stages of your life, it’s important to know which risks are associated with the investments in your 401k. The largest potential advantage, in my opinion, of rolling your 401k into an IRA is reducing your expenses.  Not all 401k and IRA plans have high internal expenses, but many do. Further, while the majority of 401k rollovers are into mutual funds, you may have the option of rolling your plan into a self-directed brokerage IRA.  Assuming you can work out a reasonable fee schedule with your advisor, using low-cost products such as index and exchange-traded funds, may be the way to go. The impact of these high fees is often overlooked by investors, and eventually can lead to disappointment or regret about how a portfolio was handled. This is ironic in that fees and expenses are among the only aspects of your investment accounts which you can actually control.  You can’t make the Dow Jones move up on a Tuesday just because you’d like to have a big day in the market.  The seemingly random movement of investments is affected by a multitude of factors, many of which are macroeconomic in nature and beyond the realm of your control.  Thus, your focus should be on your personal risk tolerance, how your funds are invested, and any costs which might reduce your investment return.

Let me give a hypothetical example of how high fees can put a strain on your investment performance. Imagine two investors, both looking for growth in their portfolios without taking on too much risk. One employee decides to leave his 401k with a former employer upon switching jobs, invested in sub-accounts through a variable annuity platform. The other employee rolled his 401k over to a fee-based brokerage IRA. The annuity owner would continue to pay mortality and expense risk charges (M&E) along with internal expenses on the mutual funds. According to the National Association for Variable Annuities, the average total expenses for variable annuities are about 2.32%.* Yes, that’s about $2,320 per year on a $100,000 account. The other investor, working with a fee-based brokerage account, has the 401k in an index fund, with an expense ratio of .18% per year.** That’s about $180 per year. Needless to say, the annuity owner in this example would be sacrificing a substantial chunk of their total return to various fees, expenses, and sales charges. The index fund investor, assuming they were paying only transaction costs and a nominal fee to their advisor, would stand to keep a lot more of their investment returns.

In light of this, vocalizing your questions about fees, expenses, and sales charges should not be uncomfortable at all: we are talking about your retirement funds, aren’t we?

One other item worth thinking about when considering a rollover to an IRA is the potential for your former employer to become distressed, merge with another company, or any other situation which you couldn’t really anticipate. This returns to the idea of convenience, control, and ease of management. By consolidating your accounts to an independent third party, you will have an easier time monitoring them. If your former employer changes their 401k plan or merges with a new one, your account could be transferred to a platform which you don’t like as much. Investing money in a company 401k plan is an excellent way to save money. In fact, many advisors will recommend that their clients save the maximum amount possible through a retirement plan prior to opening up a new mutual fund or brokerage account. This is usually advice given with taxes in mind. Why pay capital gains tax or ordinary income tax on money you won’t need until the future? Leave it in your retirement plan, let it grow, and plan for your future!

If you have questions about your 401k plan and would like to speak to an advisor, please feel free to give me a call.

Russell Bailyn

Wealth Manager

Premier Financial Advisors

14 E 60th Street, #402

New York, NY 10022

P: 212-752-4343 *31

F: 212-752-7673

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities. *National Association for Variable Annuities “The Real Cost of Variable Annuities” June, 2004.

89 thoughts on “How to Rollover Your 401k”

  1. I have a question in my college class I need to answer.
    Create a regulation permitting employee’s to be able to sell company stock from their employer matching contribution after a one-year waiting period, so that employee could use the sale to the stock to buy mutual funds or bonds that are less risky.

  2. Kudos. Your writing is clear and the advice sound, a rarity for blogs and financial sites. Could you adress the very specific issue of whether a traditional 401k can be rolled into a Roth 401k, taking the tax hit now for tax-free growth later?

  3. Hi Andrew,
    Thanks for your kind words regarding my blog. As for your questions- if you currently have a 401k plan at work, you probably cannot “recharacterize” (as it is known) from a traditional 401k to a Roth 401k. What you can do when you retire or switch jobs is roll your 401k into an traditional IRA and then recharacterize to a Roth (which consists of paying the taxes). What you can do if your current employer rolls out a Roth option, is start making contributions to the Roth instead. Does that answer your question?
    Russell Bailyn

  4. Yes, your answer confirmed what I have heard at work. I will switch my contributions to the new roth 401k but I am contemplating taking the money out of the 401k and putting it into the roth 401k, taking the penalty and tax hit. I do not believe tax rates will fall in the future.

  5. I was wondering if there was a way to roll over a 401k into a student loan? I understand the consequences etc., Interest rates on student loans and so on but my 401k is moving along pretty nicely with immediate matching/vesting, would really like to rid myself of the student loan payment.

  6. First, let me say, that I concur with the poster above regarding the clarity of this blog. The writing is indeed clear and the advice appears to be sound.
    I have a question regarding tranfering a 401k account to a traditional IRA upon changing jobs. Is there a difference between a “Traditional IRA” and a “Rollover IRA”? If there is a difference, can funds transfering from a 401k plan to either of the above IRA accounts subscequently be converted to a Roth IRA? Secondly, my previous employer had a seperate account known as a “Defined Contribution” account in which a match from my aggregate salary (5%) was contributed each year. Can this account also be moved into a traditional or rollover IRA as well?

  7. the article on this page provides a good example of the 10% early withdrawal penalty fee when rolling over your 401k and the local & fed state taxes.
    You Receive 401k Cash Distribution = $100,000
    20% Required Withholding Tax = $(20,000)
    Your Check in the Mail = $80,000
    10% Early Withdrawal Penalty Fee = $(10,000)
    Federal Income Tax Extra of 10% = $(10,000)
    7% Local State Income Tax = $(7,000)
    You Receive = $53,000

  8. Your posting states that “A 401k rollover refers to moving a 401k plan from a former or current employer into either an IRA or another qualified plan.” Can you confirm whether or not it is actually possible to roll over all or part of a 401k into an IRA without leaving your job? Specifically, I was wondering if I can roll over part of my 401k into an IRA (penalty free), and then take a withdrawl from the IRA to use as a downpayment on my first home (which is a penalty-free way to withdraw money from an IRA). I suppose it would also be helpful to know the tax inmplications of doing this. And the readers should know that the maximum amount you can withdraw from an IRA for the purchase of a first home is $10,000.

  9. Ah, the infamous “in-service” rollover question. The short answer is no, you cannot transfer 401k funds into an IRA without a qualifying event (reaching age 59 1/2 or leaving your job). Your best bet is probably to take a loan against your 401k if your plan has that feature.

  10. I have left my job and have a few questions. If I leave my 401k in my existing account, will I be able to take loans and hardship withdrawls from it? Also, to avoid the taxing and other penalities, do I have to roll it into a traditional IRA? I don’t understand your comments about a mutual or index funds.

  11. So, if you take a loan against your 401k, can you then rollover all of that amount into a traditional IRA? How would this work? Could you then roll it into a Roth IRA, and pay the taxes now?

  12. Previously you answered a person’s question about “in-service” rollovers, and you said, “The short answer is no, you cannot transfer 401k funds into an IRA without a qualifying event…”
    What is the long answer? I really want to take MY retirement money, which is 100% vested, and self-direct it in a qualified IRA. I don’t understand why it’s held captive by my employer, or why they would be bound by some legislation (IRS, etc.) to hold it captive.

  13. I am “in-service” at my employer. Our 401k plan is switching providers, so we will have to transfer all our holdings to the new financial co. If my choices with the new co. are limited, I’d like to roll over my stocks into a self-directed brokerage IRA. Is a situation like that possible in the “long answer?”

  14. If a company A sells it’s assets to Company B, will Company B have to fully vest employees 401k that was with Company A?

  15. I have a 401k that I have made tax deffered contributions into. I want to move it to a ROTH. My custodian says they can tax the funds, send me a check and I can put into a ROTH. However the custodian I want to move the funds to says I need to put 401k funds into a Traditional then convert into a ROTH. Is this true?

  16. In response to the above post concerning “in service” rollovers, you should request your plan documents to determine whether or not you can or cannot do an “in service” withdrawl. Many times within the plan document it will state that you CAN do “in service” withdrawls. This is actually something that very few people are aware of including most financial advisors.
    It was actually something that I only recently became aware of after doing some research.
    Hope this helps.
    Bill Beavers

  17. You have discussed the options of rolling the funds over into your new employers plan, or transfering it to a Rollover IRA but I think that the option of leaving the funds in the old plan is not for underestimation especially if you are pleased with your old management of the 401(k) investments and they give you good returns. Moreover, you might not have that much of a choice if your new employer doesn’t offer a 401(k) possibility.
    Also what you should consider (if you have any choice to keep you old job a little longer at all) is your vesting status. It might turn out to be better to keep your plan for a few more months. You should check when exactly you will be provided with a 100% vesting.
    Here is an example from that explains better the impact of being fully vested:
    Tom is being 25% vested per year, over a four-year period. Tom’s annual salary is $60,000 and he spares 12% out of his income for annual contributions, thus he allocates $7,200 every year for his 401(k) plan. His employer matches 100% of this amount. Tom has worked there for 2 years and 10 months but he wants to change his job. If he decides to leave now, he will receive 50% of the employer’s match (since less than 3 years have passed). He will get $10,800 – 50% of the $21,600 ($7,200 x 3 years). If Tom decides not to leave his job for two more months, he will increase his earnings with additional 25% meaning (additional 5,400$ of employer match). And if he decides to stay another year, he will get additional $18,000.

  18. Hi Steve,
    Thanks for the comments. Your point about vesting schedules is right on target. An employee should always know when they are entitled to their 401k funds. If staying 3 more months at a job could enable access to thousands more dollars… that would obviously be something to consider.
    As for leaving a 401k at an old job–this is an option as well. I’ve found that the rollover is generally a better option as you have much greater flexibility and control over your investment options. However, if you like your old plan, understand it, and it serves you well, most employer plans will allow you to leave your funds right where they are.

  19. I am 32 and have a 401k account at a past employer that I want to rollover. Should I roll it over to a Traditional IRA or a Roth IRA? What are the key questions for making this decision?

  20. My husband died in August 2007. I am the spousal beneficiary of his 401(k) and do not have an IRA account in my name. The 401(k) account is held by the administrator of his former employer. They referred me to “their” bank for the rollover and for opening an IRA in my name. They asked me to choose one of the following:
    Beneficiary IRA or
    My own IRA.
    My husband was 68 years old at the time of his death, I am now 70-1/2 years old. I live from Social Security income.
    Can you tell me what the difference is between these two IRAs and which would benefit me?
    Thank you

  21. Mark and John,
    I understand your desire to rollover your 401k plan.
    I used to work at Fidelity and have dealt with thousands of rollovers.
    Here are a few ways you can rollover your 401k and still be active.
    1. When you turn 59 1/2 you are usually able to rollover your contribution to your 401k plan. Every 401k plan is different, but if you work for a larger company this is usually the case.
    2. Division sale – If you work for a division which goes through a merger, sale, etc. often time you are treated as if you left the company. This allows you to rollover your entire balance.
    As Bill mentioned you can request your plan document. I would also suggest you contact the company that handles your 401k plan since they will be able to pull up the main bells and whistles of the plan itself.
    I cannot stress enough learning more about the plan itself.

  22. I am planning to leave my current employer. As it currently stands, I have a little over $22K in my 401K, and an additional $5K in a loan. My next employer has a IRA retirement plan. In a perfect world, I would like to be able to withdrawl a portion of the funds and rollover the remaining funds. Is this a possibility? In short, of the $22K, I would like to take a check for $10K and rollover what the remaining funds into the new IRA account. I would make the assumprion that this is not a likelihood or many people would take this route. The reason for this is taking a job that will initially pay less and a little hold back money would be nice, if I needed it.
    Thanks in advance.

  23. Toby,
    You can actually do whatever you please. If you take a $10K withdrawal from your 401k, you’ll have to pay an IRS penalty (10%) and income tax on the withdrawal. So you may actually have to withdraw $12,000 or more to get $10,000. You may also have to pay back the $5K loan before you can process a rollover. You shold call up your 401k provider and ask them what the rules are for paying back the loan.
    Also, consider if your new employers IRA is the best place to rollover your funds. You may be better off rolling the IRA somewhere else and contributing to the new plan from scratch.

  24. Hi. I realize I can only transition a 401K when changing jobs, etc. In my case, I changed jobs several years ago an rolled over my 401K into a T. Rowe Price. Can I now move that 401K over to another firm since it doesn’t have anything to do with my current or former employer? (my motivation is T.R.P. is behind the times in their support of managing my account over the internet…no Mac support, no standard way of downloading transactions, etc).

  25. I’d like to add one more benefit to those you listed above, Russell. When you roll a 401k into an IRA you usually have a much broader selection of investments to choose from. This makes it easier to achieve the appropriate level of diversification and to select the best investments in each asset class.

  26. Russell,
    You made a comment regarding variable annuities in reference to their high cost as compared to etf’s or index’s which don’t really have much comparison in terms of product features. Relative to variable annuity product features, ie. living benefits for example, do you feel that variable annuities are good investments?

  27. I am 61, can I take all or some of my 401K and roll it over to my wife’s Bank of America CD without incurring any income taxes?

  28. My age is 61. At what age can I start receiving my 401K. I have one from a privious employer that I do not have any options to move my funds to other options. I may be loosing my current job and may need to start receiving funds. Thanks

  29. I am 62 yrs.old and planning to retire this year. I have a 401k plan and would like to roll over into some other qualified plan, without a lot of excess fees, that I would be able to take a set amount as monthly income while still gaining some interest income. Are there any options like this available? Thanks

  30. DeeDee, ask your human resource director or boss if you have a 401k plan. They should be able to give you enrollment paperwork or tell you if you don’t have a 401k plan.

  31. I just left my job and want to tranfers my 401K out of the company’s plan to an IRA with my bank. Do I have to set up an IRA account w/my bank first, do I have to put funds in there before the transfer, is the tranfer made as a direct tranfer or by a check and is there a time frame in which my old company has to take care of this?

  32. How would I find out if I still have an old 401k from an old job. It was about 14 years ago and I completly forgot all about it? I don’t even remember the name of it at this moment.

  33. I had a 401k with a previous employer (1999-2001)and have some statements from that account with Frost Retirement Services (probably about $2000-3000 invested). However, in 2002 the company was bought out by a competitor and I have never recieved any information on what happened to my 401k. I called Frost and they no longer handle that account (or at least have no record of it). How can I locate and attain those funds?

  34. My company is just now offering the Roth 401k plan option. Can I roll over my pre tax “traditional” 401k savings directly into my new 401K Roth plan. Of course, if possible there would be tax implications.

  35. I want to rollover a 401k plan from a previous employer. There is employer stock involved and I want to take advantage of the NUA. How do I find a CPA that has experience with this?

  36. Hi, have a 401k plan worth $55,000 with an old employer and now I have opened a new 401k plan with my current employer. My question is, can I split a rollover? about $50,000 to the new plan and $5,000 to invest in a regular cash & margin brokerage account?

  37. I have a 401K that I would like to rollover to a retirement savings vehicle. I will be looking for another job and expect to work for about 7-10 more years. Do you think that an annuity is a good / safe place to invest the existing 401k $$’s, or is there a “better” place?

  38. How would I find out if I still have an old 401k from an old job. It was about 16 years ago and I completly forgot all about it? I was about 24 years old. I am POSITIVE the money was being taken out for the 401k(I had no clue what that was then.) I did the payroll, so I know it was taken out. I worked 3.5 years there.
    Mrs. Thomas

  39. Hi! My question is in regards to 401K and rollovers. Last year, I switched from one company to another and rolled my 401K in to an IRA, 100% of it. Am I to claim that amount as part of my income for 2007 to be taxed? I received a 1099-R showing only an amount in the Gross Distribution box, but I have my Fidelity account showing the exact amount now in a “Fidelity Rollover IRA.” Please advise as to what I should do, if I should claim it as part of my income or if I should put $0/Rollover in the box called IRA distribution on the 1040 Income Tax Return Form. Please help!

  40. My wife was terminated by her employer April 2007. The company put their matching contribution for 2008 into her 401K account in March of this year. She already has an IRA account with the same brokerage that her former company established her 401K at.
    We filled out the paperwork to roll the 401k into her IRA, but the companies third party administrator said they cannot roll it until the annual plan valuation adminstration is complete,which will be complete in a few weeks. My question is,if each employee has their own account number at this broker and gets monthly statements that shows exactly what is in their account to the penny, why are they holding up the rollover ? They also mentioned that the plan states retired or terminated employees will be paid out their distributions in approximately 120 days after the annual valuation, they said they will waive that, yet I read every single page of the plan and nowhere does it even mention 120 days. Does this all sound right to you ?

  41. I have a 401k plan that I want to rollover into an IRA. My company doesn’t match any funds. They are telling me that I can’t rollover because I still work for the employer. can you lead me in the right direction to find out how I can get them to release my funds. Thank you in advance.

  42. A few years ago, I left a company and rolled over my company 401k to an IRA with a brokerage firm. I just left another job and I don’t know whether to roll the 401k over to the same brokerage account or to roll it over to my new company’s 401k plan. i.e. Is it better to roll over a 401k to a new employer or to move it to an independent IRA?

  43. Hey guys,
    I have left my old job a few months ago, and in light of the current economic downturn, I’m wondering what to do with my old 401k. Should I leave it where it is (major county hospital not likely to go anywhere anytime soon)? Or should I roll it over into a rollover IRA and than a roth IRA?
    More to the point, does the current market downturn argue for rolling over into an IRA, or for leaving the 401k where it is?

  44. Why aren’t in-service withdrawals under age 59 1/2 allowed? It isn’t fair… my 401k plan is no good and I’d rather self-invest.

  45. I have a 401K rollover which I believe is called an IRA Rollover account. I want to convert this to a Roth IRA Rollover account. Is this possible? Are there any income limitations to make the conversion? Thank you.

  46. I have a 401k with a former employer that I am considering rolling over into my new employer’s 401k. With the economy the way it is now, is it wise to to “sell” my old 401k investment and “buy” into the new one or should I wait until the economy gets better?

  47. I’ve got a question about deferred employer matching and rolling over a 401k. My former company would only put in matching contributions in September for the previous calendar year. So since I worked there until April 2008, I won’t get my full match until September of this year. Can I roll over what’s currently in the account and then roll over the remaining match once it happens in September?

  48. I really needed info on how to find an old 401k plan. I do remember having one, but not doing anything with it since I left that job.

  49. Russell, Love this posting!
    I have a question I hope you can address.
    I worked for 2 companies before my current employer. I had 401(K)s w/ each.
    I left company 1 in 2005.
    I left company 2 in 2008.
    Company 1 has changed the investment options in their 401(K), and I’m extremely interested in taking advantage of them.
    My question is, can I roll my 401(K) from company 2 into the plan w/ company 1?
    I ask because all the articles I read discuss rolling from a 401(K) to an IRA, a new, current employer’s 401(K), or letting them stay-put, if the plan is good. I haven’t seen anyone speak to the example here.

  50. KMZ,
    The federal government is allowing taxes for conversions in 2010 to be spread over two years: 2010 and 2011. Taxes resulting from conversions made after 2010 will be due in the year of conversion. Also, remember 2010 is when income restrictions on conversions are lifted.
    Tax rates are essentially “on sale”. Rates most likely will be higher in the near future due to high levels of government spending.
    Roth conversions are definitely worth considering.

  51. Hi Ted, usually your 401k balance will get transferred into the new plan of the firm buying your old company. HR usually puts out a memo about the anticipated changes and/or freeze periods etc when this sort of change is taking place. If you no longer work there I’d probably go ahead and roll that 401k into an IRA where you can monitor and control it yourself.

  52. I left my job a year ago and had a 401K with them. I am 57 years old and want to know if it wouldn be better to roll it into a IRA account. I am at a point in my life where I don’t want to invest in anything – just leave my money safe even if it means accruing a small amount. I don’t want to lose what I have.

  53. what if my 401k is with an old employer and i can’t find it? my old employer says the plan was ‘consolidated’ 6 years ago?? shouldn’t i have gotten a letter?

  54. they probably did send you a letter and you just can’t find it or didn’t recognize it. I once threw out a 20K rollover check b/c it looked like a credit card solicitation.

  55. Several large investment firms are really starting to advertise for clients to utilize 401k rollovers, with one catch they are not truly self-directed because they limit what you can roll your money into.

  56. I am 64 and will be 65 in November. Can I take my company 401K and move it anwhere? I need to stop the bleeding.

  57. Hi Russell. Great article. Nobody seems to be covering the process as well as the benefits of rolling your 401k over. Keep up the great work.

  58. can i roll my ira into a beneficial ira? i’d like to keep all my stuff together if possible. is that allowed? thnx and great blog.

  59. I was laid off 01/01/2010,50yrs old…Can I take all or some of my 401K/Pension and roll it over to my Chase CD without incurring any income taxes?

  60. Hi Russell!
    I am a 1099 Contractor and have been for the past 3 years. I have a Individual K and have been asked by my employer to become a Full Time Employee. Can I take my Individual K and roll it into an IRA without any tax penalty?
    Thanks for the help!

  61. Hello,
    I stumbled on to your blog while looking for answer to a specific query. I have a traditional 401k as I was working in the U.S. Now I am with the same employer but have shifted to a bigger role in Canada and it is unlikely I will return to the United States. I’m wondering if you can help me transfer my 401k over to a Registered Retirement Savings Plan (RRSP)? Is it at all possible in the first place? I have been told that if a 401K is transferred to an IRA, it can be easily then transferred to an RRSP.

  62. Thanks for sharing this insightful information that makes a lot of sense. I love your clarity and straightforward writing style.

  63. I may have just overlooked this info but…I’m trying to figure something out. If i have a traditional 401k and decide to roll it into a Roth 401k do I avoid the 10% penalty?

  64. I don’t believe you can transfer money from your 401k into a Roth 401k. They are kept separate within the retirement plan for record-keeping purposes. What you can do is stop making contributions to the regular 401k and direct them to the Roth 401k instead.
    Only after you retire can or separate from service can you choose to roll your 401k into a Roth IRA.

  65. Hi Russell,
    My husband left his old job over a year and a half ago. We receive updates on his 401K there a couple times a year, and the last one had a big dip down. We need to monitor it closer, should we add it to his new job’s 401K? If so, how do we do this, literally? HR from the old job needs to give his info to the new HR job people? If not, where should we transfer it? We are mid-20′s and do not want to make a mistake that could cost us in the long run, thanks!

  66. Beneficiary question: I am recently married and was shocked to learn that Federal law dictates that 100% of 401K funds must be awarded to my new spouse upon my death, even though I have listed my child from a previous marriage to receive 90% (because I have been saving this money for 25 years). People should be empowered to decide how our assets are distributed, rather than the government. If I rollover the 401K into an IRA, will this provide more flexibility for beneficiary distributions?
    Be careful out there folks: even if you have your kids listed as Primary Beneficiaries on your 401K, federal law allows your new spouse to skate away with every penny of it and they don’t have to share any of it with your kids. This law trumps whatever you have stated in your Will. Hopefully IRAs are not burdened with this ridiculous law.

  67. Earl, I’m pretty sure if you roll into an IRA you can change your beneficiary to your children WITH approval (signature) from your current spouse. The signature is only required in a few states (it will be on your rollover IRA application) but I do believe rolling over the IRA will give you increased flexibility with beneficiary designations over the 401k. G’luck!

  68. Thanks, Russel. That “with approval from new spouse” is the problem. It appears that this same approval is required for both the 401K or an IRA. If a man saves $550K over 25 years in his 401K (with the intention that this money would go to his children upon his death), it seems un-American that a law would intervene and dictate that every dime must go to a new spouse (against the man’s wishes). Maybe the lawmakers did not foresee this situation, but I checked it out with my lawyer and he said that some children were left with nothing after a new spouse skates away with the treasure.

  69. I’m 58 and have about 55,000 in debt between Home Equity Loan, Credit cards, and a 2nd on a commercial property. I can see the taxes I would pay for early 401K withdrawl, but I will pay interest charges on the loans until they are paid off. With a rollover and a partial disbursement I can become debt-free. I am still working and I would get to keep my pay and save for vacations or a second car instead of having a 401 K that is really doing me no good in this economy. Loans are just not the way to go. Take the penalty, become debt free. Most will never know the peace of mind being debt free gives you. Financial intelligence is much better that a 401K account under government control. Live by your decision. If the government invented it then it is for their benefit. The Gov raped social security, is your 401K next?

  70. We were just informed at work last week that our company was sold and will be taken over by the new owners by Jan. 1st. Options for our 401k, cash out, let it with our current company until we reach age 70 1/2 (their stock is currently @ $25 a share), roll over into an IRA, or roll over into the new company (their stock, $5 a share). They have given us 3 weeks to figure out what we are doing. Also, any outstanding loans on the 401k’s, get payment books and continue to pay on our own, or default on the loans, and receive 1099′s at the end of year and consider it as income and pay taxes on that amt. (I only have $500 left to pay) ????? I’m guessing that the IRA is the better route to go here? Just looking for some kind of advice. I know nothing about IRA’s….

  71. Thank you for this article, however I have a question regarding my 401K that I have been unable to find an answer for.
    I was just laid off this month (march 2011), I wanted to rollover my 401K plan to my bank’s IRA.
    I filled out the paperwork with my bank, who then submitted it to my former employer, who then submitted it to American Funds (401K plan).
    I just received a letter yesterday telling me that I was unable to rollover my funds until the end of the year and to resubmit the application in January of 2012.
    Is that possible? Can my former employer and 401K plan really hold my money that long?
    I am 100% vested.
    Thank you,

  72. I’m the non spouse beneficiary of a 401k left to me by brother. He has three children that I would like to split the money between. Can I have the benefits paid out to them instead of me? Like transfer it into their names?

  73. Just went through this process. Pain in the butt. But I do have more options now b/c my 401k only had like 10 funds.

  74. I have a question about transferring 401k funds. I had both a Regular 401k plan and a Roth 401k plan with my previous employer. My new employer only has a regular 401k plan. What can I do with the Roth 401k plan? Can I transfer that to the new Regular 401k plan, or will I have to transfer that to a separate IRA?

  75. Hi Melissa. You are right that you cannot roll your Roth IRA into your new traditional 401k. What you can do is roll your traditional 401k into your new 401k and roll your Roth 401k into a new Roth IRA. That may be better for you anyway if you can increase your number of investment options and potentially lower your costs with an IRA. Best ~Russell

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