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Questions to ask when considering a 401(k) rollover.
If you’re planning to change jobs or retire and have a 401(k) account, you may want to consider a rollover. Learn more about 401(k) rollover options and other ways to reinvest your 401(k).
401k rollover options
There are a variety of 401(k) rollover reinvestment options to choose from. You can also leave the funds in your current 401(k) plan or transfer them to a new employer’s plan. But if you roll over your qualified assets into an IRA, annuity, or life insurance policy, your new account will be independent of your former employer’s program rules and restrictions. This will give you more control over how and where you invest your money.
401(k) rollover to an IRA
You can choose from either a traditional or a IRA. With a traditional IRA, the money you put in isn’t taxed initially, but it is taxed upon withdrawal. With a Roth IRA, the money you put in is taxed initially, but it isn’t taxed upon withdrawal.
401(k) rollover to an annuity
A guaranteed lifetime income annuity, similar to a pension distribution, will provide a steady stream of income that's guaranteed to last for the rest of your life—no matter how long you live.1 With an annuity that offers a guaranteed payout, you won’t have to worry about the impact a decline in the market will have on your payments.
401(k) rollover to a life insurance policy
Technically, you can’t roll over your 401(k) account into an insurance policy; however, if you have a life insurance needs, you can withdraw funds from the account and redirect them to pay for a life insurance policy. You can avoid early withdrawal penalties under IRS Rule 72t,2 which allows you to take equal payments from your accounts. However, you must agree to take consistent withdrawals from your account each year for life.
Questions to consider before rolling over your 401(k)
1. How long do I have to roll over my 401(k)?
You can roll over a 401(k) at any point after you switch jobs or retire. Bear in mind, though, that the IRS gives you just 60 days after you receive a retirement plan distribution to roll it over to an IRA or another plan. And you’re only allowed one rollover per 12-month period from the same IRA.
If you miss the 60-day deadline, the taxable portion of your 401(k) distribution will be taxed. And if you are under the age of 59½, there will be an additional 10 percent tax penalty.
2. When can I roll over my 401(k)?
Most people roll over their 401(k)s after they change jobs or retire. But some 401(k) plans do allow employees to roll over funds while they are still working. It’s best to work with a financial professional to weigh the costs and benefits of this option.
3. Do I have to roll over my 401(k) when I retire?
You don’t have to roll over your 401(k), but when you leave your money with your former employer, your investment choices are limited to what’s available in the plan. There also may be limitations on when and how you can shift your investments.
4. Will taxes be withheld if I roll over my 401(k) to another qualified retirement plan?
You can avoid mandatory tax withholding by requesting a direct rollover, with the check made payable directly to your new trustee. If there is no distribution payable to you, the transfer is tax free.
5. Can I roll over just part of my 401(k) account?
Yes, you can use a rollover to move a portion of your funds from a qualified plan or an IRA to another IRA.
6. Do I have to report my 401(k) rollover transactions on my tax return?
IRA rollovers are reported on your tax return as a non-taxable transaction. However, you should mention any IRA rollover to your tax preparer—or double-check all documentation if you prepare your taxes yourself.
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1 Guarantees are subject to the claims-paying ability of the issuer.
2 “Retirement Plans FAQs Regarding Substantially Equal Periodic Payments,” IRS.gov. See irs.gov/retirement-plans.
Neither New York Life nor its representatives or affiliates provide tax or legal advice. Consult with a tax or legal advisor to discuss any questions or concerns that you have, such as the tax consequences of withdrawing funds or removing shares of an employer’s stock from a retirement plan and whether money invested in a retirement plan receives greater protection from creditors and legal judgments in your state than money invested in an IRA or annuity. Also, consider that you may be able to take taxable, but penalty-free, withdrawals from an employer-sponsored retirement plan between the ages of 55 and 59½ that you would not be able to take if you roll over your funds to an IRA or annuity. Additionally, if you plan to work after you reach age 72, you may not be required to take minimum distributions from your current employer’s retirement plan but would be required to do so for funds invested in an IRA or annuity.