What are the differences between a 401k rollover and a 401k transfer?

When you decide to roll over an old 401k into a new 401k or a self-directed Individual Retirement Account (IRA), you can opt for an:

 

  1. a.    401k rollover, or a
  2. b.    401k transfer

 

401k rollovers and 401k transfers share some similarities, but the differences between a 401k rollover and a 401k transfer are what savvy investors hone in on to maximize their chances of retirement account success.

 

You can use a 401k rollover or a 401k transfer to move your money away from your former employer, but the method in which the money is moved is the biggest difference between a 401k rollover and a 401k transfer, at least in the eyes of the IRS.

 

A 401k rollover means that your 401k provider liquidates the account and authorizes a check or bank wire in your name. Even if you re-invest the funds before the 60-day IRS limit, you’re still vulnerable to losing up to 30% in taxes and penalties with the swipe of a pen when you accept your old 401k money directly.

 

Instead of rolling over a 401k to yourself, many investors opt for a custodian-to-custodian transfer because the money goes directly from the 401k custodian to the IRA custodian. 401k owners never take direct possession of those funds during the 401k transfer process, which nullifies the need for countless hours of frivolous IRS paperwork.

 

Trustee-to-trustee 401k transfers are not currently subject to tax withholdings, and are exempt from the IRS’ recently-enacted “one rollover per year” rule.

 

Many 401k rollover advisers agree that it’s smarter to transfer a 401k rather than roll over the account, but please speak with a licensed tax attorney before making any decisions about your 401k rollover. For a free “401k rollover vs. 401k transfer” guide, call (800) 767-1423 or visit www.401kRollover.com today.  

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