The average American will have 12 jobs during their lifetime. You’re always going to have a lot on your mind when you switch jobs. That means it’s easy to forget key details like rolling over your 401(k). There are a few things you need to know if you are planning to do this.
How Much Time Do You Have To Make This Decision?
Assuming your employer sends disperses the balance to you, you’ll have 60 days to complete a 401(k) rollover and ensure it ends up in an eligible retirement account. If you don’t do it within this time limit, you’ll be faced with an early withdrawal penalty and income taxes.
Are There Alternatives?
You do have alternatives to a 401(k) rollover that you can explore. Your options depend on how much you have in your 401(k) and what policies are in your summary plan. For instance, if you have less than $1,000, then you can get a lump sum from your previous employer (even if you didn’t request it!).
If this happens automatically, you still have 60 days to roll it over to your new 401(k) and avoid a 10% penalty tax and income taxes. If your previous employer had taxes withheld from the lump sum, be sure to add those back in when you roll your money over, or you may have a 10% penalty on the amount withheld.
If you have between $1,000 and $5,000, and you didn’t opt to have your funds rolled over to a set account, then your employer may be required to transfer these funds to an IRA.
If you have at least $5,000 in your 401(k), you need to provide consent for your employer to do anything. You can roll it over or cash it out. It could be worth speaking to a financial planner or financial advisor if you are not sure which option is best for you. Advanced planning techniques such as converting from a traditional 401(k) balance to a Roth IRA account or timing disbursements are best discussed with a financial planner to understand how these changes impact you today and in retirement.
What About Old 401(k)s?
It’s more common than you think for people to forget about 401(k)s completely. The good news is these stagnant 401(k)s have no specific time constraints on moving the account. But if you want to cash out, then the 60-day limit stands to place it back into a qualified account. You may also elect to have the 401(k) custodian issue a rollover check, which does not allow you to cash it, but to deposit it for your benefit directly into an IRA account avoiding the 60 day time limit altogether. It’s also worth noting you can only use a 60 day rollover once per calendar year. Institution to institution transfers and rollover checks can be used as much as you like.
We hope this helps you understand how much time you have to roll over your 401(k) from a previous employer. If you have more questions about this decision, it’s always best to get support from a professional wealth management service.