How to Roll Over Your 401(k): A Step-by-Step Guide

When you leave a company, rolling over your 401(k) can seem like just another thing that you don’t want to worry about., but with the right guidance, it can be a smooth and easy process.  At Centered Financial, we believe in empowering you with the knowledge to make informed financial decisions. Here’s a comprehensive guide to help you navigate the 401(k) rollover process. 

1. Decide on the Destination Account 

The first step in rolling over your 401(k) is deciding where you want your funds to go. You have a few options: 

• Traditional (Rollover) IRA: This is a personal retirement account and for tax purposes it is treated the same as your pre-tax 401(k) contributions.  It allows you to continue deferring taxes on your retirement savings. 

• Roth IRA: If you prefer to pay taxes now and enjoy tax-free withdrawals in retirement, a Roth IRA might be the right choice.  It is important to know if your current 401(k) account has Roth or Pre-Tax money or both.  If you decide to convert pre-tax money to Roth, you will have to pay taxes on the amount that is converted. 

• New Employer’s 401(k): If your new employer offers a 401(k) plan, you should be able to roll your old 401(k) into it. 

Consider your financial goals, investment options and tax implications when making this decision. 

2. Open Your New Account 

Once you’ve decided on the type of account, the next step is to open it (if you don’t have one already). If you’re rolling over into an IRA, you’ll need to choose a financial institution to manage your account. Look for one that offers low fees and a wide range of investment options. 

3. Contact Your Old 401(k) Provider 

This can usually be done by logging in to your 401(k) account.  Most plans have a withdrawal or distribution tab on the menu.  If you click on this tab it will guide you through the process.  You need to make sure you have the name, address, and account number for the company where the money is being sent. 

If you can’t process the rollover online, reach out to the administrator of your old 401(k) plan. They will provide you with the necessary forms and instructions. Be sure to ask about any fees or penalties associated with the rollover. 

4. Initiate the Rollover 

There are two main ways to roll over your 401(k): 

• Direct Rollover: The funds are transferred directly from your old 401(k) to your new account. This method avoids any tax withholding and is generally the easiest and most efficient option. 

• Indirect Rollover (Not advised!): You receive a check for the balance of your 401(k), which you must deposit into your new account within 60 days to avoid taxes and penalties. Note that 20% of the funds will be withheld for taxes, which you’ll need to make up from other sources to complete the rollover. 

5. Invest Your Funds 

Once your funds have been transferred to your new account, it’s time to invest them. Consider your risk tolerance, time horizon, and financial goals when choosing your investments. Diversifying your portfolio can help manage risk and optimize returns. 

Common Question:  Which is better for compounding returns: one larger account or multiple smaller accounts? 

Compounding is the result of the interest factor earned on the money, so if you are earning the same return across accounts, then the result would be the same either way.  However, in reality, multiple accounts have different fees and investment options, so they won’t be exactly the same.  With Centered Financial’s planning dashboard, you can track your progress among all of your investment accounts and see your total portfolio in one place. 

You can set up your own complimentary dashboard here: 

Centered Financial Dashboard

6. Monitor and Adjust 

After completing your rollover, it’s important to regularly review your account and make adjustments as needed. Keep an eye on your investment performance and rebalance your portfolio to stay aligned with your financial goals. 

Final Thoughts 

Rolling over your 401(k) is a significant financial decision that can impact your retirement savings. By following these steps and seeking guidance you can ensure a smooth transition and continue building a secure retirement. 

At Centered Financial, we’re here to support you every step of the way. If you have any questions or need personalized advice, don’t hesitate to reach out to us. 

Feel free to reach out if you need further assistance or have any questions about the 401(k) rollover process! 

Centered Financial, LLC is a registered investment adviser offering advisory services in the State of California, Utah, Texas and in other jurisdictions where exempted. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the techniques, strategies, or investments discussed are suitable for all investors or will yield positive outcomes. To determine which strategies or investment(s) may be appropriate for you, consult your financial adviser prior to investing. Any discussion of strategies related to tax or legal planning is general and is not intended as tax or legal advice. Please consult appropriate tax and legal professionals for recommendations pertaining to your specific situation.