If you have more than $5,000 in your former employer’s 401(k), you generally won’t be forced to roll over your 401(k), according to the IRS.
If a distribution is made directly to you from your retirement plan, you have 60 days from “the date you receive” a retirement plan distribution to roll it over into another plan or an IRA, according to the IRS.
But if you have more than $5,000 in a 401(k) at your previous employer – and you’re not rolling it over to your new employer’s plan or to an IRA – there generally isn’t a time limit on making this decision.
Is it better to roll over a 401(k) to IRA?
If you like your former employer’s 401(k) plan – the investment options and the expense ratios on the investments – then it won’t necessarily be better to roll it over into an IRA. But you may find that if you roll your 401(k) into an IRA, you may have more investment options. Compare expense ratios and fees to see which option is best for you. Rolling over your 401(k) to an IRA may result in you earning a brokerage account bonus, depending on the rules and restrictions that the brokerage has in place.
Kaleb Paddock, a certified financial planner at Ten Talents Financial Planning in Parker, Colorado, says a typical 401(k) plan only has approximately 20 to 40 mutual funds available. But an IRA could give you access to thousands of exchange-traded fund (ETFs) and mutual funds.
“Another reason might be, if you want to invest in socially responsible funds or funds that invest according to a certain set of values, those funds may not be available in your 401(k) or your prior employer 401(k),” Paddock says. “But by rolling it over to … one of these large custodians, you’ll likely be able to access funds that may be socially responsible or fit your values in some fashion — and give you more options that way.”
Do I have to pay taxes when rolling over a 401(k)?
As long as you roll over your 401(k) within 60 days from “the date you receive” a retirement plan distribution, into another plan or an IRA, it should not be a taxable event. A direct rollover is another method that you can use to roll over your 401(k). Taxes generally aren’t withheld from the transfer amount, and this may be processed with a check made payable to your new qualified plan or IRA account, according to the IRS.