401(k) Rollover

If your new employer offers a 401(k) plan, you may transfer your old 401(k) assets to the financial institution that manages retirement accounts for your new employer.

A direct rollover is the best way to avoid the tax you might pay if the transfer goes through you first. Make sure the old institution transfers directly to the new institution, not through you. Your assets need only to touch your hands (e.g., a check made out to you) for the IRS to deem it a distribution that is automatically taxable at 20%, even if you intend to reinvest it in another qualified plan.

The new institution might maintain your old 401(k) as a separate account from the new one you start with your new employer. That's because your new employer might contribute matching funds to your new 401(k), but probably not to your old. But you may contribute to it if you wish, up to the maximum, annual amount allowed by the IRS, split among all your 401(k) accounts.

Also be aware that your old institution might sell all of your properties and transfer the cash to the new institution, where you may reinvest it. That's because your new employer may not offer the same investments as your former. This might be a problem if your properties have dropped in value. If that's the case and you qualify to do so, you might be better off leaving your account with your former employer for awhile, to see if the value goes back up. On the other hand, it might stay flat or continue downward. So, selling your properties and reinvesting the money in your new plan might be the better choice, to minimize your losses. Be sure to find out all you can about this option from your former and new employer, and the managing financial institutions. But since the institutions could be biased toward their own investments, it might be a good idea to consult with an independent financial or tax counselor too.

Your new employer (HR department) or the managing institution has forms you may fill out for a direct rollover. Financial institutions are typically eager to get your business, so they make it fairly easy. Just be sure to take action within the time period set by your plan administrator (mentioned on page 1), so you don't unintentionally receive an automatic early distribution.

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