A Retirement Account Rollover: What Can You Expect?

One of the most often asked concerns is what to do with your previous 401(k) account. We analyze various factors while deciding whether to stay or move strategically, but how should you proceed if you wish to transfer funds from one company to another? Here’s what you need to know to make the process go as smoothly as possible.

Opening the communication lines

Have you ever seen an old movie or one set in the early days of the telephone? To connect calls, the switchboard operator had to plug and unplug the hardwire lines. That is an excellent analogy for what happens when a rollover is initiated. In terms of shifting funds from one firm to another, you act as the operator as the account holder. Rolling money from one account to another is a pretty frequent practice, but there are a few things to keep in mind while doing so.

Contact the company you’re rolling the account from

To begin, you must understand what paperwork is required for the funds to be released. Calling your current provider is the best way to find out. Take no one else’s word for it. The receiving firm may have a good notion of what the other firm wants, but there’s no way to tell for sure until you contact the firm from whom the funds are being rolled.

First, simply ask about the process of rolling over your assets to another provider. That inquiry may provide you with all of the information you want, but before you hang up, be sure you know:

• What is the timeline from when you request the money to when it’s transferred? (This might take a few weeks)
• Are there any expenses?
• Is it necessary to fill out any paperwork?
• What addresses do they have on record for you?
• Can correspondence only be sent to those addresses?

Be prepared for some pushback — you may be requested to rethink and speak with someone to keep the account where it is. If you’re not interested in retaining your assets there, it’s okay to be firm and explain that you have made your decision and that you would need the rollover information as soon as possible.

Contact the company that will be receiving the rollover

Once you know what you’ll need to do to get the money out, contact the firm you’ve chosen to receive it (either your new job or the IRA company you’ve chosen). This side will probably be more flexible in terms of how they get funds from your previous account, but here are some things you should discuss with them to ensure a smooth transition:

• If the receiving company is a 401(k) or another retirement plan at your employer, ensure that they know and understand the sort of account from which the rollover is coming. The ability to receive assets from another plan or IRA is based on the plan document. Some 401(k) plans might not accept all incoming transfers.
• That also applies to rolling funds to an IRA. Are the funds under the former plan pre-tax, after-tax, or Roth? That might create a necessity of opening both a traditional and a Roth IRA.
• If the previous company asks for sending a paper check, get specific instructions on who the check should be made out to. If you skip this critical step, you may accidentally generate an indirect rollover and the tax implications that come with it.

You’ll undoubtedly be asked how you want the funds invested once they’re in your new account. Don’t let this choice stall the process because you can most likely make adjustments once the money is there. Just make sure you pick an option so that the transaction can be completed.

Set the transfer in motion

You can begin your switchboard operator magic once you’ve determined what to do on both ends. Since the new account may not provide the same investment alternatives, it’s typical to liquidate any mutual funds or other investments in the previous account. That is less of an issue in retirement accounts because there should be no tax consequences for selling but be aware that you may change your mind about the entire process. Anyway, moving cash is less complicated than transferring mutual funds or stock shares.

Following that:

• Keep tabs on the process online and keep any documents sent to you concerning the transfer.
• Set up online access for the new account(s), so you can track when money is received.
• Once the transfer is complete, double-check that the amount that left your old account matches the amount that arrived in your new account.
• Think about leaving the previous account open for a few weeks to collect any leftover interest or dividends, then make sure those are transferred over.
• The following year, you should get a Form 1099-R from the distributing company. If you did the rollover right, there should be nothing in the taxable box, but retain the form just in case. Check the documentation and internet history to ensure that the transactions are in order.

That should help you through the stages to a rollover. Depending on your circumstances, the transaction may be more complicated, or you may be able to bypass some procedures. If you work with an advisor, they may sometimes make the process easier. In any case, lean heavily on each company to ensure that they’re both trying to deliver your money to the right place.