How to Roll From a Qualified 401K to a Roth IRA

When you retire or stop working for a company, it may be a good idea to roll your 401K savings into a new fund. While keeping your funds in the current 401K may be an option, sometimes there are extra fees involved once you stop working for the company. A 401K rollover to a Roth IRA is an option to ensure that your retirement savings grows until you are ready to withdraw it.


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    Know the benefits and limitations of a Roth IRA. While this isn't necessary to do the 401K rollover, it will help to keep you informed of your investments and ensure that you are comfortable with the decision. Read journals and books about Roth IRAs, talk to a financial adviser, and compare the Roth to other types of IRAs and investments.
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    Understand that the money you transfer will be taxable. Further, you may not be able to roll over the whole fund in 1 year, since there are income and balance limitations. Be prepared to take tax hits in the years that the conversions take place.
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    Choose your new Roth IRA. Talk to different providers to find out if your current plan qualifies. Find out the steps for doing the 401K rollover. In some cases, you will have to have a check sent to you which you then deposit. Other plans do the rollover with little involvement from you. Find a plan that works best for you and open the account.
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    Talk to your current 401K provider about how to roll from a qualified 401K to a Roth IRA. First, the provider can clarify that your plan is qualified. They can also tell you about any issues or fees, and check to make sure you are no longer listed as an employee in the plan.
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    Get the required forms from the old and new providers. Even if you are unsure what forms need to be filled out, you can request them in advance. Some providers offer forms by email or download. Whether the forms are paper or electronic, keep them in a safe and clearly labeled file until you are ready to fill them out.
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    Fill out the forms and submit them. Make sure all information is correct, to avoid fees or delays. Choose "Direct Rollover" if this is an option, so that the money will go from 1 account to the other without involvement on your part.
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    Follow up regularly with both providers. They should be able to give a timeframe in which the transfer is to be completed. Check with both around that date to make sure the rollover has taken place. If not, find out what is holding it up; it could be an error on the form or missing information.
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    Deposit the check right away. If your old 401K sends the check to you, deposit it as soon as possible into the new account, to avoid delays or lost checks.
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    Ask for help if you need it. Don't be afraid to call either the old or new plans as often as needed to clarify information. It may be worth talking to a financial or tax adviser about how to roll from a qualified 401K to a Roth IRA. While you may have to pay a fee for this, in the end it could save money on tax and other penalties.

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Categories: Retirement