Rolling Over Your Nest Egg? 401(k) to IRA

Trying to figure out what to do with an old retirement plan? Consider a rollover IRA.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Ferris wheel: Roll over a 401(k) to an IRA
4 min read

Key Takeaways

  • A rollover IRA can help you avoid certain tax issues when moving your money 
  • Consider your choices and the type of account you already have 
  • Our rollover consultants can walk you through the process

“What should I do with my old 401(k)?”

This is one of the most common questions we get when workers change jobs. It can be tough to figure out what to do with your money when you move to a new company, retire, or start your own business. But if you want to maintain control over your money and potentially avoid tax and penalty issues, an Individual Retirement Account (IRA) can be one way to keep your nest egg working for you.

Four Strategies for Your Old Retirement Plan

Before we look at IRA rollover rules, it’s important to understand the alternatives. There are four main things you can do with your old 401(k).


What to do with an old 401(k): Four choices

It’s important to consider your choices carefully and do what’s best for you. Many consumers appreciate an IRA, which lets them continue to manage their money without incurring new tax consequences.

Potential Advantages of an IRA

Depending on your situation, there may be a number of potential advantages associated with an IRA. Some of the potential benefits of rolling over an old 401(k) or another employer plan into an IRA include:

  • You might have lower fees as compared to 401(k) plan fees.
  • Your investments retain the same tax advantages.
  • You’ll likely gain access to a wider range of investment choices than in a 401(k).
  • There may be flexibility later on to convert the IRA to a backdoor Roth account.

There are some downsides, though. You won’t be able to take out a loan against your IRA, as you could with a 401(k). There may be trading commissions, and the exact same investments might not be available to you. Speak with a qualified tax and/or investment professional and weigh the alternatives carefully before deciding whether an IRA is right for you.

IRA Rollover Rules

When you’re rolling over your old 401(k), it’s important to follow the right steps. It’s not particularly difficult to set up an Individual Retirement Account, but there are some things to keep in mind.

First of all, you’ll need to understand the type of account you’re looking to roll over. For most employees, the answer will be a traditional 401(k). If that’s the case, you’ll need to roll the money into a traditional or rollover IRA. With the rise of Roth 401(k)s, there’s a chance your money is in a Roth account, which means you’ll need to roll the money into a Roth IRA.

If you're not rolling over into an existing IRA, you'll need to set up a new account. Many brokerages, including TD Ameritrade, offer rollover and Roth IRAs. The transaction should be designated as a rollover.

Your new broker should provide you with account information and an address where the funds can be sent. When the new account is set up, call your current plan administrator and let them know where to send the money. In some cases, you might even be able to fill out the paperwork online.

Most important: make sure the check is made out to the new broker with “For Benefit Of” (FBO) as your name. Many plan administrators can take care of this easily, either by sending the money directly to your new IRA custodian or by sending the check to you to forward on to your new broker. Just make sure you don’t cash the check yourself, because if the money passes through your bank account, it could lead to tax and penalty issues.

Watch Out for Net Unrealized Assets

For the most part, rolling over to an IRA is fairly smooth and usually cost free. But if you have company stock or options, you may have net unrealized assets, which may have associated tax consequences. Consider talking to a tax professional and asking your current plan administrator if you’re subject to this issue before starting the process.

Get Help with Your Rollover IRA

You don’t need to handle your rollover on your own. Many brokerages can help you set up your new account and move the funds. TD Ameritrade has rollover consultants who can call your 401(k) provider with you. Your rollover consultant will focus on your needs and help smooth the process. Learn how you can roll over your old 401(k) to TD Ameritrade in three simple steps.

All investing involves risk, including the possible loss of principal. 

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Key Takeaways

  • A rollover IRA can help you avoid certain tax issues when moving your money 
  • Consider your choices and the type of account you already have 
  • Our rollover consultants can walk you through the process
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Before deciding whether to retain assets in a 401(k) or roll over to an IRA an investor should consider various factors including, but not limited to, investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. View the FINRA Investor Alert for additional information.

You may roll over assets from a former employer’s retirement plan to an existing Traditional IRA or open a new, separate Rollover IRA. The assets you roll over to an existing Traditional IRA can later be moved into an employer-sponsored plan. However, the after-tax (non-deductible) contributions you make to your Traditional IRA cannot be rolled over to an employer-sponsored plan. Always consult a tax advisor to learn how a financial decision will impact your individual retirement planning.

TD Ameritrade does not provide tax advice. Clients should consult with a tax advisor with regard to their specific tax circumstances.



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