If you take the cash from your old employer administered 401k plan instead of rolling it over to a Rollover IRA, you will have to pay early withdrawal penalties (10%) and a 20% tax withholding fee. This applies only to qualified retirement plans and includes 401k plans, 403b plans and other profit sharing plans. What is a Direct IRA Rollover? * The above example assumes the 401k retiree is less than 59 and 1/2 years old and has to pay the 10% Early-Withdrawal Penalty fee. This 20% IRA Withholding law can be overridden by doing a 100% Direct IRA Rollover to your own Individual Retirement Account (IRA). This is because companies by law are required to withhold 20% of your entire 401k savings account for tax purposes. This law is implemented to discourage retirees from withdrawing money from their plans early on and let it earn the power of compounding interest. This means the money never actually reaches your hands, it is wired from your old 401k administrator to your new one.
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What is a Direct IRA Rollover?
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If you have already decided that you want to move your 401(K) plan, here are the two main options you have: 1) Call me or 2) Follow this four step process, make copies of everything, keep detailed records of dates and names and get comfortable because it can take a long time, mostly on hold. If the fees are too high, you need to figure out what is causing the fees and if there is anything that can be done. Are you unhappy with your 401(K)? This could leave you short on cash, out of the markets or providing a sizable interest-free loan to the government. It is always best to make it a DIRECT ROLLOVER which means the money is never titled in your name. The tendency is for people to give up at the first road block. The direct rollover typically takes two to six weeks though it can be even longer depending on the responsiveness of your 401(K) provider. Be sure to provide them with your new IRA Rollover account number. Expect a form 1099R from your old plan. Sometimes the plan
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