How to Rollover a 401(k) to Empower

Preparing for Your Rollover

A 401(k) rollover moves funds from a previous employer’s retirement plan into another qualified retirement account, such as an Individual Retirement Account (IRA) or a new employer’s 401(k) plan. This consolidates retirement savings, simplifies financial management, and offers access to a broader selection of investment options. Empower is a common destination for such rollovers, providing various IRA options.

Before initiating a rollover, understand the distinction between a direct and an indirect rollover. A direct rollover, also known as a trustee-to-trustee transfer, moves funds directly from your old 401(k) provider to your new Empower account without you ever taking possession of the money. This method avoids tax withholding and minimizes penalty risk.

An indirect rollover means you receive a distribution check from your old 401(k) plan, and you are responsible for depositing the funds into your new Empower account within 60 days. Your old plan administrator is required to apply a 20% federal income tax withholding to the distribution. If you choose an indirect rollover, you must deposit the full amount, including the 20% withheld, into the new account within the 60-day window. This avoids the withheld amount being treated as a taxable distribution and potential additional 10% early withdrawal penalty if you are under age 59½. You must use other funds to make up for the amount withheld to ensure the entire original balance is rolled over.

To prepare for your rollover, gather specific information from your former 401(k) provider. This includes your old 401(k) account number, the plan administrator’s contact details, your current account balance, and details of your investment holdings. Having this information readily available will streamline the process.

The next step involves establishing the appropriate type of account at Empower to receive your rollover funds. Empower offers Traditional IRAs and Roth IRAs, common choices for 401(k) rollovers. A Traditional IRA allows for tax-deferred growth, meaning contributions may be tax-deductible, and taxes are paid upon withdrawal in retirement. Conversely, a Roth IRA involves after-tax contributions, but qualified withdrawals in retirement are tax-free.

The decision between a Traditional and Roth IRA depends on your current tax situation and future tax expectations. If you anticipate being in a lower tax bracket in retirement, a Traditional IRA might be suitable; if you expect to be in a higher tax bracket, a Roth IRA could be more advantageous. Empower also provides options for a Brokerage IRA, offering a wider selection of investments for those who prefer more direct control over their portfolio. After deciding on the account type, complete the necessary forms, which include a rollover request form from Empower and a distribution request form from your old 401(k) provider.

Initiating and Completing the Rollover

Once all preliminary information is gathered and your Empower account is established, initiating the rollover can begin. Contact Empower’s rollover specialists, who can guide you through their forms and procedures. Empower facilitates direct rollovers, where funds are transferred electronically or via a check made payable directly to Empower, minimizing your involvement in handling the funds.

You will need to coordinate with your old 401(k) plan administrator to initiate the distribution of your funds. This involves submitting the distribution request form, which should clearly indicate it is a direct rollover to Empower. Ensure the form includes all necessary details, such as Empower’s account information, to prevent delays or issues. Your former employer’s plan administrator is required to provide a written explanation of your rollover options.

After submitting the completed forms to both Empower and your former 401(k) provider, the transfer process will commence. Submission methods vary, including online portals, mailing, or faxing, depending on the institutions involved. Empower will work directly with your old plan administrator to facilitate the transfer of your retirement assets.

Monitoring the progress of the rollover is important, as the timeline can vary from a few days to several weeks. You can track the transfer by checking your Empower account online or by contacting both Empower and your old 401(k) provider for updates. Maintaining communication with both institutions helps ensure funds are moving as expected and any potential issues are addressed promptly.

If an indirect rollover was chosen, and you received a check made out to you, deposit the full amount into your Empower account within the 60-day window. This includes replacing the 20% that was withheld by your old plan. For example, if you received $8,000 from a $10,000 distribution, you need to deposit the $8,000 check plus an additional $2,000 from other sources into your Empower account to complete the full $10,000 rollover. Failing to deposit the entire original amount within this timeframe results in the untransferred portion being considered a taxable distribution, and potentially subject to additional penalties if you are under age 59½.

After Your Rollover is Complete

Once funds have successfully transferred to your Empower account, confirm their receipt and proper allocation. Log into your Empower account to verify the full rolled-over amount is reflected accurately. This ensures the transfer was completed without discrepancies.

The rolled-over funds arrive in a cash equivalent within your new Empower account and do not automatically invest. Actively invest these funds according to your financial goals and risk tolerance. Empower offers a range of investment options, including mutual funds, exchange-traded funds (ETFs), and individual stocks, which you can explore to build your portfolio.

Review all confirmation statements received from both Empower and your old 401(k) provider for accuracy. These documents serve as a record of the transaction and are for your financial records. Ensuring all details match your expectations helps prevent future complications.

For tax purposes, you may receive a Form 1099-R, “Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,” from your old 401(k) plan administrator in the year of the rollover. For a direct rollover, this form will show a gross distribution in Box 1 and a taxable amount of zero in Box 2a, with a distribution code of ‘G’ in Box 7, indicating a direct rollover. If the rollover was indirect and you made up the 20% withholding, the Form 1099-R will still report the gross distribution, but you will indicate on your tax return that the full amount was rolled over, making it a non-taxable event. Report the rollover on your tax return even if it is non-taxable.