- Although you can ask the trustee of your 401k to send you a check for the balance of your account, he will need to withhold 20 percent of the amount that you withdraw for taxes. You would then have to deposit the amount of the withholding, or you would have to pay taxes and penalties on that 20 percent. Instead, tell the trustee of your old plan that you would like to do a trustee to trustee transfer. This way, no money is withheld for taxes, and the full value of the account is transferred directly to the new trustee and the new account.
- You can rollover a 401k account to a traditional IRA without paying tax on the amount of the rollover. To do this, you must have left employment with the company that has the 401k account. You may roll this money into an IRA that you already own, or you can start a new account to keep track of this money separately.
- If you started a new job that has a 401k plan, you may rollover the balance of your 401k plan from your prior employer to your new employer's 401k plan. You can generally speak to the trustee of the plan with your new company, and they will give you the forms that you must send to your old 401k trustee. She can then complete a trustee to trustee transfer to the new companies plan without any tax implications at the time of transfer.
- Some companies now offer Roth 401k accounts. These are similar to a Roth IRA account, because the money that you put into the account is after tax income. When you withdraw the money at retirement, all of the withdrawal is tax free, both the original investment and the interest. If your company offers a Roth 401k, you can rollover money from a regular 401k plan to the Roth. Since the regular 401k money is before tax money, you will need to pay taxes on any money that you rollover. There is no 10 percent penalty on traditional 401k to Roth rollovers.
Trustee to Trustee Transfer
To an IRA
To Another 401k
To a Roth 401k
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