How To Rollover A 401K Into An IRA (Individual Retirement Account)

Learning how to rollover a 401k into an IRA is relatively easy. Most custodial companies can tell you how to transfer or rollover a 401k into IRA funds. Just be sure that this is the decision that you wish to make.

If you are trying to learn how to rollover a 401k into an IRA, you are probably changing jobs. If not, I would not suggest that you make this move. Annual contribution limits are much higher in 401ks than they are in IRAs and employers often match contributions.

If you are changing jobs then you probably will have to transfer or rollover 401k into IRA funds, since 401Ks are employer sponsored programs. A person that is about to become self-employed or is opening his own business can set up a 401k-plan, because of recent changes in the legal structure of these accounts. You just need to find a custodial company that offers self-managed 401Ks and you can invest the fund in anything from real estate to tax liens or stick with the more traditional, but highly volatile stock market.

The First Step You are wondering how to rollover a 401k into an IRA, so here's the first step. Decide if you actually want a roll-over or if a transfer is the better option.

Rollovers and transfers are different transactions, but the terms are often used interchangeably by custodial companies. That causes some confusion.

Rollovers require the liquidation of the holdings within the account. Transfers might not. Many assets can be transferred from one institution to another, as long as the custodian allows those investment types.

A rollover 401k into IRA is reported to the IRS. You will receive a check and have 60 days to deposit it into another approved account. The new custodian will provide the necessary paperwork and it must be attached to your year-end tax returns. Your current custodian may be required to withhold a portion of the fund for tax purposes. That ruling seems to vary. From personal experience, they usually "ask" if you want a portion withheld, leaving the decision to you.

Transfers are not reported to the IRS, so there is less paperwork, but it does require that you choose a new custodian, first. That's the second step.

The Second Step Before you transfer or directly rollover 401k into IRA funds, you need to find a new custodial company. There are lots of companies out there and you should compare the investment options that they offer, as well as the fees that they charge.

Actually, you have already taken a smart step by learning how to rollover a 401k into an IRA, ahead of time. Now, you might want to learn more about the allowable investment options. Real estate, for example, is becoming increasingly popular choice for those that convert a rollover 401k into IRA accounts of the self directed type.

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