Do I Sign the Back of a 401k Rollover Check?
Understand when and how to endorse your 401(k) rollover check for a smooth transfer of retirement funds and to avoid tax issues.
Moving retirement savings from an old 401(k) plan to a new account, often an Individual Retirement Arrangement (IRA) or another 401(k), involves careful steps to preserve the tax-deferred status of the funds. This process frequently includes receiving a check from the previous plan administrator. A common concern is whether an endorsement is required to ensure funds are correctly transferred without incurring unexpected taxes or penalties. Correctly managing this check is important for maintaining your retirement savings’ growth potential.
Types of 401(k) Rollover Checks
The method for handling a 401(k) rollover check largely depends on how the check is issued. There are two main types of checks you might receive during a 401(k) rollover. A direct rollover check is made payable directly to your new retirement account custodian, often with the notation “FBO” (For the Benefit Of) your name. This structure means the funds never directly enter your personal possession, maintaining their tax-deferred status throughout the transfer.
An indirect rollover check is made payable directly to you, the individual account holder. Though issued to you, these funds are intended for rollover into a qualified retirement account. Handling this check correctly within a specific timeframe is important to avoid the funds being considered a taxable distribution.
Endorsing Your Rollover Check
Whether you need to endorse your rollover check depends on the type of check you have received. If you have a direct rollover check, made payable to your new retirement account custodian, you generally do not need to sign the back. These checks are designed to be sent directly to the financial institution managing your new retirement account, bypassing your personal endorsement. The custodian will process the check based on the instructions provided by your previous plan and the check’s specific payee designation.
Conversely, if you receive an indirect rollover check made payable directly to you, endorsement is necessary. You should sign the back of this check, just as you would any other personal check you intend to deposit or cash. This endorsement authorizes the transfer of funds from you to your new retirement account. This step is important before the check is submitted to your new custodian or deposited into a temporary account, ensuring the funds are properly credited to your retirement savings.
Submitting Your Rollover Check
After determining if your check requires endorsement, submit it to your new retirement account custodian. For a direct rollover check, you typically forward it along with any required rollover instruction forms. These forms provide specific details to the new custodian about how the funds should be allocated within your new account, such as whether they are for a Traditional IRA or a Roth IRA. It is recommended to send these documents via a secure, trackable mailing method to ensure their safe arrival.
If you have an indirect rollover check, you will need to deposit it into your new retirement account. This often involves mailing the endorsed check to your new custodian with clear instructions that the funds are for a rollover contribution. Some financial institutions may allow you to deposit the check into a temporary personal account first, provided you then transfer the exact amount to your new retirement account within the specified timeframe. Always confirm the preferred submission method and any accompanying documentation with your new financial institution before sending funds.
Important Rollover Information
For indirect rollovers, the 60-day rollover period requires funds received by you to be redeposited into a qualified retirement account within 60 calendar days of receipt. Failing to meet this deadline means the entire distribution will generally be considered taxable income for the year it was received. This could result in a substantial increase in your taxable income and, if you are under age 59½, potentially trigger an additional 10% early withdrawal penalty.
Another consideration, particularly when rolling funds into an IRA, is the “one-rollover-per-year” rule. This rule applies specifically to IRA-to-IRA rollovers, meaning you can only complete one indirect rollover from an IRA to another IRA within any 12-month period. This limitation does not apply to direct rollovers or rollovers from a 401(k) plan to an IRA.