401k Rollover Rules
LEARN 401K ROLLOVER RULES
The 401k rollover rules are in place to limit the number of people who will remove money from these retirement accounts. Since money that enters a 401k is money that is designated for retirement, and it is not taxed when placed into the account, the federal government requires that funds removed from this account for unapproved reasons to be taxed heavily. However, if you are moving from one job to the next or from one fund to the next, you do have the ability to move funds from one account to the next, so long as you do so in the proper way.
If you wish to avoid the near 20 percent taxation on the withdrawal of funds from your 401k, you need to do one of two things. The first is to rollover the funds from an existing account into a new account directly. In this case you, the account owner, does not physically touch the money. Rather, one investment institution sends the funds to the other directly.
The other option that you have if you no longer have an employer sponsored 401k is to move the funds into an IRA or into a solo 401k. Financial institutions manage these accounts and the funds must be moved from one account to the next within 60 days to avoid any type of fee or tax to be applied to it. It is critical to understand the 401k rollover rules so that you can avoid the hefty tax that is sure to follow if you make a mistake here.
