What is a rollover withdrawal?
A rollover withdrawal is a tax-deferred and penalty-free way of moving your savings from a former employer's retirement plan into an IRA or into another workplace savings plan.
- With an IRA, you can pick from a wide variety of investment choices including mutual funds, stocks, bonds, ETFs, and more
- Taxes aren't due unless you withdraw the money
- You can take penalty-free withdrawals for certain first-time home purchases or education expenses if you’re under 59 1/2
- You can roll over all contribution types to an IRA
- Note: You can choose to work with any financial service provider. Your employer does not endorse any specific provider.
A rollover is a way to transfer assets from a former employer's workplace savings plan, such as a 401(k) or 403(b), to your new employer's workplace savings plan or an IRA. To do this, you'll need to request a check from your previous employer, then complete and send any necessary paperwork, or you can contact your companies 401K savings plan representative and it can be completed electronically one of the following ways:
- A direct rollover: You request your workplace savings assets go directly to your new workplace savings plan or IRA. Taxes and penalties are not assessed during the transaction because the assets are not payable to you. Instead, your former employer makes the withdrawal check payable to the trustee or custodian of your new employer's plan or IRA.
You will not incur taxes or penalties, and your assets will remain invested tax-deferred (you will not owe taxes until you withdraw your savings or begin taking minimum required distributions at age 70). In most cases this type of rollover is the easiest way to avoid taxes and penalties. - A 60-day rollover: You have your workplace savings plan assets paid directly to you, and then roll over the assets into an IRA or your new workplace savings plan. You must complete the rollover within 60 days of receiving the distribution to avoid current income taxes. You'll be subject to mandatory 20% withholding for federal income tax, which you would have to replace with your own funds if you want to roll over your entire distribution.
If you hold the assets for more than 60 days, your distribution will be subject to current income taxes, as well as a 10% early withdrawal penalty if you are underage 59½. If you plan to roll over this distribution to an IRA, a Direct Rollover may make the most sense.
You can roll over most distributions except a minimum required distribution, a hardship distribution, a corrective distribution, or loans treated as distributions. Not all rollover types may be accepted into your current employer's plan, and rollovers will be subject to the rules, restrictions, administrative and investment fees, and investment availability of your current employer's plan.
