How to Move a 401(k) From One Company to Another

Moving a 401(k) from one company to another is a common financial decision when changing jobs. Understanding the process helps individuals manage their retirement savings effectively. This transition allows for continued tax-deferred growth of retirement assets, a significant advantage for long-term financial planning. Properly handling a 401(k) ensures accumulated savings remain dedicated to future retirement needs.

Understanding Rollover Options

When moving a 401(k), individuals have several options, each with distinct implications for taxes and accessibility. A common approach is a direct rollover, where funds transfer directly from the old plan administrator to a new retirement account, such as a new 401(k) or an Individual Retirement Account (IRA). This method is preferred because funds never pass through the individual’s hands, maintaining their tax-deferred status and avoiding mandatory tax withholding. A direct rollover prevents the mandatory 20% federal tax withholding and early withdrawal penalties.

Another option is an indirect rollover, where funds are first distributed to the individual. The individual then has 60 days to deposit the money into a new qualified retirement account. The plan administrator must withhold 20% of the distribution for federal income tax purposes. To complete the rollover and avoid tax consequences, the individual must deposit the full amount, including the 20% withheld, into the new account within the 60-day window. Failing to redeposit the entire amount within 60 days makes the distribution taxable income and may incur an additional 10% early withdrawal penalty if under age 59½.

Cashing out the 401(k) involves taking the money as a taxable distribution, which is not advisable for retirement savings. This action immediately triggers ordinary income taxes on the entire amount. If the individual is under age 59½, an additional 10% early withdrawal penalty applies. Cashing out significantly diminishes retirement savings and should be avoided unless absolutely necessary, as it negates the benefits of tax-deferred growth.

Gathering Necessary Information

Before initiating any transfer, collect specific information and documentation from both the old 401(k) provider and the intended new account. From the old 401(k) provider, individuals need their account number, employer identification details, and contact information for the rollover or distribution department. Inquire about any potential processing fees charged by the old plan for distributions.

For the new account, whether a new employer’s 401(k) or an IRA, specific details are required. If rolling into a new 401(k), obtain the plan name, account number, and any required forms from the new employer’s plan administrator. If rolling into an IRA, the receiving IRA custodian will provide the IRA account number, routing information for electronic transfers, and forms necessary to accept the rollover contribution.

Both the old and new providers require specific forms to facilitate the transfer. These include a “401(k) Distribution Request Form” from the old plan and an “IRA Rollover Contribution Form” from the new custodian. These forms can be obtained from the plan administrator’s website or by contacting their customer service department. Accurately completing these forms, using the gathered details, is important for a smooth process.

Initiating the Rollover Process

Once all necessary information and completed forms are prepared, initiate the transfer of funds. Individuals begin by contacting their old 401(k) provider, by phone, online portal, or mail. When making the request, specify that a direct rollover is desired to ensure funds transfer directly to the new account, avoiding personal receipt and associated tax implications. The old plan administrator will then process the request and send the funds directly to the new provider.

Simultaneously, coordinate with the new account provider to ensure they are ready to accept the incoming funds. This involves submitting their specific rollover contribution forms or providing account details to the old provider. Tracking the transfer’s progress is advisable by noting confirmation numbers and checking online account statements from both providers. The direct rollover process can take several weeks, depending on the institutions involved.

If an indirect rollover was chosen, the individual receives a check for the distribution, minus the mandatory 20% federal tax withholding. The individual must then deposit the full amount of the original distribution, including the withheld portion, into the new qualified account within 60 days from the date the funds were received.

Confirming the Transfer and Tax Implications

After initiating the rollover, confirm that the funds have successfully arrived in the new account. Verify this by checking online statements or contacting the new 401(k) plan administrator or IRA custodian directly. Confirming receipt ensures the tax-deferred status of retirement savings is maintained without interruption.

Following the transfer, individuals can expect to receive specific tax forms related to the distribution and contribution. The old 401(k) provider will issue Form 1099-R, which reports the distribution from the retirement plan. This form indicates whether it was a direct or indirect rollover, and it will show amounts withheld for taxes.

Conversely, the new IRA custodian or 401(k) plan will issue Form 5498, which confirms the rollover contribution received into the new account. Both forms are essential for accurate tax reporting. A properly executed direct rollover is generally not considered a taxable event, meaning the transfer itself does not trigger income tax or penalties. For indirect rollovers, these forms are crucial to demonstrate that the funds were redeposited within the 60-day window, preventing the distribution from being treated as taxable income and avoiding penalties.