How to Rollover a 401(k) After You’ve Left Your Job

Why you need to know this: If you ever leave your job, you need to figure out what to do with your 401(k).

When I quit my fancy startup job and left behind all my lovely benefits — my health insurance, stock options and 401(k) matching — to work for The Awl Industrial Complex, I had to figure out what to do with my 401(k). If we started a new company 401(k) plan with excellent and cheap investment options, I might have rolled the money from my old retirement account into that alternative. Of course, creating a 401(k) plan is pretty much out of the question when you’re bootstrapping a website from scratch, but this actually makes my life easier! I can just roll my old 401(k) into a Roth IRA from a brokerage firm of my own choosing.

And if you have ever left a job, this is a thing you should do! You need to rollover your 401(k) into an IRA, because you don’t want your money sitting in your old company’s investment plan (unless that plan is amazing, but the odds are that it isn’t). If you don’t do anything, you’ll miss out on better investment opportunities, or your old company might cash you out of their plan, and send you a check. This might sound awesome (a check!), but it is actually terrible! Because unless you’re 59 1/2 years old, the IRS counts this as an early withdrawal, and you will have to pay income tax on that money, plus a 10 percent penalty.

So! Roll it over. It’s really easy. Here’s what you do: 

Step One: Open up an IRA at the brokerage firm of your choosing (more information here).

Step Two:  Call the customer service line for the brokerage firm where you are opening your IRA account and tell them you’d like to rollover your 401(k) into an IRA. This is a very common request — and they want you to trust them with your money! — so they’ll walk you through everything you need to do and answer any questions you may have.

Step Three:  Have the account information where your old 401(k) resides readily available. Customer service may be able to call your old 401(k) company and get everything settled in one simple, painless phone call.

Step Four: Fill out any paperwork your new brokerage firm requires from you. If the customer service representative hasn’t been able to get your old company to transfer the cash to your new account, you’ll have to call the customer service line at your old company and ask them to transfer your funds into your new IRA. Don’t let your old company send you a check (see terrible penalties above).

You’re good to go! Now all you have to do is remember to continue making your contributions, manage your investments, and dream about all the things you can do with your money when you’re ready to retire.

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7 Comments / Post A Comment

toptierstate (#453)

Thank you for this! I have been intermittently wondering how to do this for literally 3 years without taking action. One step closer to becoming a fully emerged adult!

Babs Bunny (#547)

Good to know! I’m leaving my current job and starting a new one in a few weeks. They have a 401(k) plan. Would I need to roll mine into an IRA anyway? Or just put it straight into the new company’s plan?

Mike Dang (#2)

If you like your new company’s plan, and want to roll it over to the new plan, you can do it. The drawback is that you’re limited to your company’s plan until you’re done working for the new company. Rolling the funds over into a new brokerage account may give you more options.

Babs Bunny (#547)

@Mike Dang I forget to reply directly to you… but I replied below :)

Babs Bunny (#547)

The new company does a match, so I would want to get something in there. In the advice you give in the column above, are you suggesting that the writer have both a company 401(K) and an IRA? Just want to make sure I’m clear. :)

Mike Dang (#2)

@Babs Bunny Yes, contributing enough money to get the match in your company’s 401(k) plan, and also contributing to an IRA is a great way to save for retirement.

If you are adventuresome, roll into a self-directed IRA and retain full control of your money. Of course you will have to learn about stocks, bonds and RISK. It also takes a strong Will and remember you are playing for the long run.

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