The Proper Way to Rollover a 401K or IRA — and What You Must Avoid | 401k Rollovers and Your Retirement Planning at 65

Troy Sharpe: We’ve done thousands of IRA rollovers and 401(k) rollovers on behalf of clients here at Oak Harvest Financial Group. There are certain ways to do it right and certain mistakes you absolutely want to avoid.

[music]

Hi. I’m Troy Sharpe, CEO of Oak Harvest Financial Group, certified financial planner, professional, and host of the Retirement Income Show. When you roll money over from a 401(k) to an IRA, what you’re doing is you’re taking your retirement funds from your workplace and putting them into an individual retirement account. You have to sell the positions inside of your 401(k), they go to cash, then the proper way to do it is to have a check made out directly to the new institution that is receiving your funds. This is called a direct rollover or a trustee-to-trustee rollover. The money will go from your 401(k) custodian, sometimes they’ll mail the check to you and that is okay, as long as the check is written out to the new custodian.

If you’re moving the money to TD Ameritrade or Fidelity or Schwab, you want that check made up to the new custodian. This eliminates any room for error. If the check is made up to you from the 401(k), your workplace plan is required to withhold 20% of that check and then you deposit it into your bank account and you have to deposit not only the money that you receive from your 401(k), but you also have to come out of pocket for that 20% and make up the difference to complete the rollover. Now, you’ll get that money back come tax time that they withheld but if you don’t do this, you do not complete the rollover. This is why it’s critical to have that check made out to the new custodian when you’re pulling money from the 401(k).

When you’re rolling money from an IRA to an IRA, this means an individual retirement account to an individual retirement account, not a workplace plan to an IRA, an IRA to IRA. If that money comes to you in your name and you get it over to the new IRA within 60 days, that process can only be done once per 12 months. That’s not a calendar year. That’s a 12-month period. If you want to follow this, your entire retirement account will become taxable, and if you’re younger than 59½, subject to a 10% penalty. You want to make sure when you’re rolling from IRA to IRA, you do a direct rollover or a trustee-to-trustee transfer.

Make sure to work with a professional when doing this to avoid the possibility of running afoul of this 60-day rule once per 12-month period with IRAs. If you have any questions, reach out to us, reach out to your financial advisor. Don’t try to go this alone because the consequences of making a mistake when you roll money from a 401(k) to an IRA or an IRA to an IRA could be devastating to your retirement savings. If you like this video, make sure to share it with a friend or family member, hit the thumbs up, hit the subscribe button. Again, if you need help rolling the 401(k) over or an IRA to IRA, reach out to us or reach out to somebody that can help you do this the right way.

[music]

[00:03:17] [END OF AUDIO]