401(k) Rollover: The Complete Guide (2022)

Shawn Plummer

CEO, The Annuity Expert

A 401(k) rollover is a process by which you can move your retirement savings from one 401(k) account to another. This can be a great way to consolidate your retirement savings, or to move your money into a better investment plan. In this guide, we will discuss how the 401(k) rollover works and what you need to do to complete it. We will also provide some tips on choosing the right investment plan for you!

What Is A 401(k) Rollover?

A 401(k) rollover is a process by which you can move your retirement savings from one 401(k) account to another. This can be a great way to consolidate your retirement savings, or to move your money into a better investment plan.

There are two main types of 401(k) rollovers: direct rollovers and indirect rollovers.

Direct Rollover

A direct rollover is when you instruct your old 401(k) plan administrator to send your money directly to your new 401(k) plan or annuity. This process is simple and straightforward, and there are no taxes or penalties involved.

Indirect Rollover

An indirect rollover is when you withdraw the money from your old 401(k) account and then deposit it into your new 401(k) within 60 days. With an indirect rollover, you will be taxed on the withdrawal, but as long as you deposit the money into your new 401(k) within the 60-day window, there are no penalties.

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How Does A 401(k) Rollover Work?

There are a few steps you will need to take in order to complete a 401(k) rollover.

First, you will need to contact your old 401(k) plan administrator and let them know that you want to do a rollover. They will likely have some paperwork for you to fill out.

Next, you will need to open a new 401(k) account with the investment company of your choice.

Once your new account is set up, you will instruct your old 401(k) plan administrator to send your money directly to your new account. This is called a direct rollover.

If you choose to do an indirect rollover, you will withdraw the money from your old 401(k) and then deposit it into your new 401(k) or annuity within 60 days. Again, you will need to contact your old 401(k) plan administrator and let them know that you want to do a rollover. They will provide you with the necessary paperwork.

Once you have withdrawn the money from your old 401(k), you will need to deposit it into your new 401(k) within 60 days. You can do this by writing a check or by transferring the money electronically.

It’s important to note that if you do an indirect rollover, you will be taxed on the withdrawal. However, as long as you deposit the money into your new 401(k) within the 60-day window, there are no penalties.

Benefits of a 401(k) rollover

You can move your 401(k) to an IRA before you retire. There are many reasons for this, like when you get close to or enter your retirement years.

Consolidate your money to know how much you have.

When you put your retirement money in a single account, you can see how much money is there and how long it will last. This way, you can know what kind of lifestyle your money will support when you are retired.

Withdrawal From One Account

When you retire, it is easier to withdraw your money if it is all in an IRA. However, if you have many 401(k) accounts, you have to be careful and make sure that the money spread across multiple accounts lasts for your whole retirement.

More Investment Options

In an IRA, you will have more investment options than if you had your 401(k). You can customize your portfolio to match what stage of life you are in. You can change it as time goes on.

Transparency and control over fees

You can choose an IRA or annuity provider that has transparent fees, so you know how much you will pay.

While you can benefit from changing your old 401(k) to a new one, sometimes it is better to keep your old one. First, you need to ensure that you are not paying high 401(k) fees or losing money.

If you have less than $5,000 in your 401(k), your company can take it without warning and put it into a safe harbor IRA. This is bad because the fees are higher, and there aren’t as many investment options. This is another reason you should consider rolling over your 401(k) into a better account.

Tips For Choosing The Right Investment Plan

Choosing the right investment plan for your 401(k) rollover is important! Here are a few tips to help you choose the best plan for you:

  • Consider your investment goals. What are you hoping to achieve with your retirement savings?
  • Think about your risk tolerance. How much risk are you willing to take on?
  • Research different investment options. There are many different types of investments available, so it’s important to do your research and choose the option that is right for you.
  • Consider fees and expenses. Some investment plans have higher fees than others. It’s important to consider these when choosing a plan so that you don’t end up paying more in fees than you need to.

How To Find An Old 401(k)

Contact Your Former Employer.

The easiest approach to check up on a previous 401(k) plan is to contact the human resources department or a third-party administrator (TPA) at the company where you used to work.

U.S. Department of Labor’s Employee Benefits Security Administration

The U.S. Department of Labor has a database for people looking for retirement plans that have been abandoned. This database will help you find out if the plan has been terminated and who to contact about it.

National Registry of Unclaimed Retirement Benefits

Your former employer might have left money for you in a retirement account. You can check to see if they did by going to unclaimedretirementbenefits.com.

Pension Benefit Guaranty Corporation

The Pension Benefit Guaranty Corporation’s Missing Participants Program has recently been expanded to include 401(k) plans.

How Much of a 401(K) is Taxed After Retirement?

Because a 401(k) is a tax-deferred qualified retirement plan, all income withdrawn from a 401(k) is subject to ordinary income taxes.

Typical 401(k) Plan Providers

Reasons to Rollover a 401(k) to an Annuity

Annuity vs. 401k? Often debated among “financial experts” is whether an annuity should ever be used in a tax-qualified 401(k). Like a 401k, annuities provide income tax deferral. Therefore, it may at first seem redundant to place an annuity inside a qualified retirement plan.

That might be true if the only benefit an annuity offered is tax deferral. But, the fact is, annuities offer many advantages, whether held inside or outside of a 401(k).

Annuities are flexible investment products that can help you achieve your long-term financial goals and provide a source of retirement income. Tax deferral alone is not a sufficient reason to use an annuity in a tax-qualified plan. But income options, death benefit protection, investment selections and services, and flexibility are benefits an annuity can bring to any 401(k).

Tax-Deferral

There are no tax consequences as long as you follow IRS guidelines. You won’t pay any taxes on gains from the annuity until you withdraw your money.

Growth Potential

You can earn additional interest based on the upward movement of an external market index in both bull and bear markets.

Protection from market downturns

In a fixed annuity or fixed index annuity, you will not lose money due to market downturns. If the markets have a down year, you earn zero interest. In exchange for this protection, you are limited on the upside you can get each year, unlike an individual stock through a mutual fund.

A variable annuity will provide unlimited upside potential with no protection from volatile market conditions. However, adding a Guaranteed Lifetime Withdrawal Benefit can protect the annuitant from running out of money due to a stock market crash.

Guaranteed retirement income for life

You can choose to annuitize your annuity to receive annuity payments over a period of time or for life or add an optional income rider to generate a paycheck you can never outlive. Sometimes the insurance company will provide a paycheck that increases to help with inflation and the cost of living.

Flexibility

In addition to an income for life, waivers of surrender charges are often included to offer accessibility to your retirement plan in case of emergencies like entering a nursing home or terminal illness. In addition, there are no limits on annual contributions to an annuity.

Estate Planning

With most fixed indexed annuities, your beneficiaries are guaranteed to receive your annuity’s Accumulation Value or Minimum Guaranteed Value, whichever is greater.

Contribution Match

Like a 401(k) match from your employer, some annuities can offer a premium bonus (up to 15%) on rollovers and additional deposits.

Annuities That Accept 401(k) Rollovers

Shop and compare annuity plans that will accept a rollover from a 401(k) retirement plan.

401(k) Vs. Annuity: A Comparison

Annuity401(k)
No Contribution Limits (non-rollover) Limited Contributions
Insurance or Investment Products Investment Products
Guarantee on Investment No Guarantee on Investment
Tax-Deferred or Tax-Free Growth Tax-Deferred Growth
Pass Down to Beneficiaries Pass Down to Beneficiaries
Spousal Continuance Spousal Continuance
Market Volatility Protection Could Lose Money
Guaranteed lifetime Income Could Run Out of Money

Conclusion

401(k) rollovers can be a great way to consolidate your retirement savings or to move your money into a better investment plan. By following the steps outlined above, you can complete a rollover with ease! And by choosing the right investment plan for you, you can ensure that your retirement savings are working hard for you. Request a quote below.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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