How to Transfer Your Pension by Yourself

Transferring a pension involves moving accumulated retirement savings from one qualified retirement account to another. This process, often called a rollover, can help individuals consolidate accounts, potentially reduce fees, or gain more control over investment choices. Individuals can manage a pension transfer themselves, though it requires understanding rules and procedures to avoid unintended tax consequences.

Understanding Your Current Pension

Before initiating any transfer, it is important to understand the specifics of your current pension plan. Pension plans generally fall into two main categories: defined benefit (DB) plans and defined contribution (DC) plans. A defined benefit plan typically provides a guaranteed income stream in retirement, often based on factors like salary and years of service. Defined contribution plans, such as 401(k)s or 403(b)s, involve regular contributions from you, your employer, or both, with retirement income depending on investment performance.

The type of plan you have impacts transferability; defined benefit plans, with their guaranteed income, often have different rules regarding transfers compared to defined contribution plans. Confirm your vested amount, which is the portion of your pension benefit you are entitled to keep. Identify if your plan offers a lump-sum payout option, as some defined benefit plans might not.

A document to review is the Summary Plan Description (SPD), which employers provide. The SPD details the plan’s benefits, how it operates, eligibility requirements, and how benefits are calculated and paid. This document also contains contact information for the plan administrator, who will be your contact for any transfer inquiries.

Choosing Your Transfer Destination

Selecting the appropriate destination for your pension funds is an important step, as it involves understanding different account types and their tax implications. Common destinations for a pension rollover include an Individual Retirement Account (IRA) or a new employer’s qualified retirement plan, such as a 401(k). An IRA provides broad investment options and flexibility, while rolling into a new employer’s plan can simplify management by consolidating retirement savings.

There are two methods for moving funds: a direct rollover or an indirect rollover. A direct rollover involves the funds being transferred directly from your old plan administrator to the new account provider, without you ever taking possession of the money. This method is recommended because it avoids immediate tax withholding and potential penalties.

An indirect rollover means the funds are distributed to you directly, and you must deposit them into a new qualified account within 60 days. If you choose an indirect rollover from an employer-sponsored plan, the plan administrator will withhold 20% for federal income tax. To avoid the 20% being considered a taxable distribution, you must deposit the full original amount, including the withheld portion, into the new account within 60 days. Failing to meet the 60-day deadline or not redepositing the full amount can result in the distribution being taxed as ordinary income, and potentially an additional 10% early withdrawal penalty if you are under age 59½.

Initiating the Rollover Process

Once you have determined your pension details and chosen a transfer destination, initiate the rollover. Contact the administrator of your current pension plan. This contact information is found in your Summary Plan Description (SPD) or on your plan statements. Inform them of your intent to roll over your pension funds and request rollover paperwork or instructions.

The pension administrator will require specific details about the receiving account, such as the name of the new financial institution, the account number, and how the funds should be made payable for a direct rollover. For a direct rollover, the check should be made out to the new institution for the benefit of your account, not to you personally. Providing accurate information is important for a smooth and tax-compliant transfer. Completing and submitting these forms allows your current pension provider to begin processing the transfer of your funds.

Completing and Confirming Your Transfer

After initiating the rollover, the funds will be moved from your old pension plan to your new retirement account. This occurs through a direct electronic transfer or by a check mailed to the new institution. Confirm that the funds have been successfully received by the new retirement account provider. Check your new account statements or contact the institution directly.

For tax purposes, expect to receive documentation from both your old pension plan and the new account provider. Your former pension plan will issue Form 1099-R, “Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,” by January 31 of the year following the distribution. This form reports the amount of the distribution and any federal income tax withheld. Keep this form for your tax records and accurately report the rollover on your income tax return.

The new account provider will send confirmation statements once the funds are received and invested. Review these documents to ensure the correct amount was transferred and allocated as intended. Integrating the newly transferred funds into your overall investment strategy within the new account aligns these savings with your broader financial goals.