401k Rollover

It's a major life change to leave your job. We don't blame if you aren't feeling the benefits of your employer-sponsored retirement plan right away. It's likely that you are still learning your way at your new job and will need to manage administrative tasks. It can be overwhelming. We urge you to look into 401k rollover options.

We will be covering different methods of transferring a 401k and the rollover process.


What is a rollover of a 401k?

You can direct your 401k rollover to transfer the money from your 401k plan into a new 401k or IRA.

Optional 401k Rollover

Let's begin with what your options are when it comes to your 401k.

  1. Your money can be left with your former employer's 401k plan. This is the easiest option, as it basically does nothing and leaves your 401k funds right where they are.
  2. Transfer your assets to an individual retirement account (IRA). If you don't have one, you will need to open one. You can transfer your 401k money to an IRA if you already have one.
  3. Transfer your old 401k to your new employer's plan for 401k. This will allow you to continue your 401k momentum.
  4. Take all your 401k funds and cash them out. You'll then "take the money, run", by withdrawing a lump sum from your old 401k. You will likely have to pay income taxes on the distribution if you are under 59 1/2 and a 10% penalty. Calculate it: 401k Early Withdrawal Calculator
  5. You could cash out a portion your 401k, pay any taxes or penalties, and then roll it over to an IRA, your new employer's 401k, or into an IRA.

Benefits of rolling over your 401k to an IRA

One common misconception about 401k plans, is that you can continue to receive matching contributions and vest the match if your funds are left in the account after you have left the employer. Although we hate to break the news, it is true. You will not only be denied matching contributions but also you will not be allowed to contribute to your old retirement plan.

For most people, the decision is simple: Roll over your 401k assets to an IRA.

There are certain situations where a cash-out may make sense. For example, if your company has stock in your 401k. High-income earners may encounter a taxable situation if they attempt a backdoor Roth conversion after rollingover a 401k to an IRA. Talk to your financial advisor if you feel this may be the case.

1. Rollover fees for 401k are lower

If there are additional fees, 401ks may be more expensive than IRAs. First, administrative fees. These fees are used to pay for the day-today operations of a retirement plan, such as record-keeping and accounting. Additionally, 401k investments are more costly than other investments outside of a retirement plan.

According to the Center for American Progress, 401k fees average around 1% of plan assets. Although it doesn't seem like much, let's look at a simplified example and see what impact 1% can make on your retirement assets.

Let's say you are 40 years old and have an old 401k with $150,000 of assets from a previous job. This plan has an annual expense of 1.5%. The account now has a value of more than $560,000 after 30 years (assuming a 6% compounding rate and a 1.5% fees).

A fee of 1% less, or 0.5%, would make your portfolio worth 33% more in 30 years. Your annualized net gain if you invest $150,000 in funds that charge 0.5% fees is 5.5%. This will make your $150,000 today into $750,000 over 30 years. You could increase your retirement savings by almost $200,000 by lowering your investment costs.

These plan fees are not included in IRAs, so it's worth considering a 401k transfer. Personal Capital's Fee Analyzer is free and will show you the potential impact fees have on your retirement plans.

2. Additional Investment Options

You can also roll your 401k into an IRA to increase your investment choices. After the money has settled into your IRA you and your advisor have access to thousands of ETFs or bonds, mutual funds, or individual stocks. There are many mutual funds available, but you don't have to choose from the few dozen that are typically included in a typical 401k. Here's an amazing fact: 401k plans may only offer three investment options.

Mutual funds are expensive and often underperform the market. ETFs are a tax-efficient, low-cost way to build a portfolio that is well-diversified. ETFs are low-cost investments that can help you increase your retirement security without increasing portfolio risk or savings.

Continue reading: Mutual Funds vs ETFs: What's The Difference?

Your investment time horizon, risk tolerance and other factors will all influence your decision about which asset classes to invest in. To help you determine your target allocation, and to see how your portfolio compares, use the Personal Capital Investor Checkup Tool.

You can trade within your IRA without generating reporting requirements from the IRS, just like any other retirement account. You can think of it as this: When you unload shares you are not taking a distribution and when you use the profits for reinvestment, you are not making a contribution. This benefit is greater in IRAs because you have more control over your investments.

Cashing out Your 401k

You can cash out any part or all of your 401k, as explained above. We don't recommend you cashing out your retirement plan if it is less than 59 1/2 years old due to the 10% tax and 10% penalty.

Cashing out a portion of your company stock investment could be a good idea. Why? The reason is that company stock is subject to a different tax treatment if it is taken as a lump-sum distribution from a 403k. You pay ordinary income tax on any withdrawals from a retirement fund, regardless of whether you take money out of a 401k for a lump sum distribution, or to supplement your retirement income. Therefore, appreciation and income gains are treated the same way.

The company stock can, however, be distributed from a Roth 401k as an unrestricted lump sum. The ordinary income tax rate will only be applied to the stock's cost basis. Your company stock's growth is considered "net realized appreciation," or NUA. Your NUA will be subject to tax only once the stock is sold. If the stock is not sold within a year of receiving the lump sum distribution you'll pay long-term capital gains tax.

The NUA rules also require that you meet certain other requirements. You must first distribute within one year the entire vested balance in the plan, inclusive all assets from any accounts sponsored by the same employer.

Distributions cannot be converted into cash and must be taken in shares. Either you must have separated from the company or reached the minimum age to receive distributions, been injured resulting in disability or died. You must carefully review the NUA strategy. It is not suitable for all. Before you move forward, consult your tax and financial professionals.

Read more: Can I Withdraw from My 401k Or IRA Penalty Free?

How to roll over your 401k to an IRA

These steps will help you rollover your 401k into an IRA.

  1. If you don't already have an IRA, open one. You should choose an investment company that offers many investment options, including mutual funds and ETFs. This will allow you to achieve broad asset allocation and diversification.
  2. Tell your former employer that your 401k funds are being transferred to an IRA. You should make sure that the check is made payable to the investment company and not to you. This is known as a trustee to trustee transfer. If you do not, 20% will be automatically withheld in order to pay taxes.
  3. After the transfer is completed, you can choose how to invest the money to reach your retirement goals. Every person's retirement investment strategy will differ based on their goals and risk tolerance.

Most Frequently Asked Questions

What is a rollover in a 403k?

A rollover occurs when funds are transferred from one eligible retirement plan into another, such as from a 401k or Rollover IRA.

Is it worth rolling over a 401k

Rolling over your 401k to an IRA account can be a worthwhile investment in many cases. You will have lower fees, more investment options and greater withdrawal flexibility.

Are You at Risk of Losing Money If You Transfer a 401k Account?

You won't lose any contributions, employer contributions, or earnings from your old 401k. Your money will remain tax-deferred until you withdraw it.

Here are some next steps for you

Register for Personal Capital's financial tools and you will have access to the Fee Analyzer. This will let you see how much investment fees you are paying. You'll also have access to the Retirement Planner when you sign up. This will let you see how likely your portfolio to support your retirement based upon your individual goals.

Consider talking to a financial advisor for guidance in your decision to transfer your old 401k.

Personal Capital: Get started

Frequently Asked Questions

What proportion of your portfolio should you have in precious metals

The best way to avoid inflation is to invest in physical gold. Because precious metals are a long-term investment, you can not only buy in to the current value but also the future potential of these assets. You can expect your investment to increase in value with the rise of metal prices.

Gains will be taxed if you keep your investments for at minimum five years. You will also have to pay capital gains taxes if your investments are sold after the five-year period. Visit our website to find out more about buying gold coins.

Are precious metal IRAs a wise investment?

It all depends on your willingness to take the risk of an IRA account losing its value. You can use them if your cash balance is $10,000, as long you don't expect it to grow quickly. These may not be the best option if you are looking to save for retirement over many decades and invest in assets that will increase in value (e.g. gold). These investments can also be subject to fees that could reduce any gains.

How much are gold IRA fees?

An average annual fee for an individual retirement plan (IRA) is $1,000. There are many types of IRAs available, including traditional, Roth, SEP and SIMPLE IRAs. Each type has its own set requirements and rules. If your investments are not tax-deferred, you might have to pay taxes on the earnings. Consider how long you will keep the money. You will save money if you intend to keep your funds longer than a Roth IRA.

You can contribute up to $5500 per year to a traditional IRA (or $6500 if you are 50 or older). A Roth IRA gives you the ability to contribute unlimited amounts per year. The difference between them? With a traditional IRA, the money can be withdrawn at your retirement without tax. With a Roth IRA, however, any withdrawals will be subject to taxes.

What kind of IRA can you use to hold precious metals in?

Employers and financial institutions often offer Individual Retirement Accounts (IRA) as an investment vehicle. An IRA allows you to contribute money that is tax-deferred until it is withdrawn.

You can save taxes by setting up an IRA and then paying them off when you retire. This allows you to save more money today and pay less taxes tomorrow.


An IRA has the advantage of allowing contributions and earnings to grow tax-free until you withdraw your funds. You can face penalties if you withdraw funds before the deadline.

Additional contributions can be made to your IRA even after you turn 50, without any penalty. If you decide to withdraw your IRA from retirement, you will owe income taxes as well as a 10% federal penalty.

Withdrawals that are made prior to the age of 60 1/2 are subjected to a 5% IRS tax penalty. For withdrawals made between the age of 59 1/2 & 70 1/2, a 3.4% IRS penalty will apply.

Withdrawal amounts exceeding $10,000 per year are subject to a 6.2% IRS penalty.

What Should Your IRA Include in Precious Metals?

Protect yourself against inflation by investing in precious metals like gold and silver. This is not only an investment for retirement, but it can also help you prepare for any economic downturn.

Although silver and gold prices have increased in recent years, they can still be considered safe investments as they don't fluctuate nearly as much as stocks. Plus, there's always a demand for these materials.

Silver and gold prices are typically predictable and stable. They are most likely to rise when the economy grows and fall during recessions. This makes them excellent money-savers, and long-term investment options.

Precious metals should make up 10 percent of your portfolio. This percentage can be increased if your portfolio is more diverse.

Can I get physical ownership of gold in my IRA

Many people wonder if they are allowed to possess physical gold within an IRA account. This is a legitimate question since there is no legal way.

But if you carefully examine the law, there's nothing stopping you from owning gold in your IRA.

Most people don't realize the cost savings they could make by putting their gold into an IRA rather than keeping it in their homes.

It's easy to throw away gold coins but not so easy to put them in an IRA. If you decide to keep your gold in your own home, you'll pay taxes on it twice. You will pay taxes twice: once to the IRS and one for the state in which you live.

You can also lose your gold and have to pay twice the taxes. Why would you want to keep your gold in your house?

Some might argue that gold should be safe at home. But to protect yourself against theft, you should consider storing your gold somewhere more secure.

If you plan on visiting often, you shouldn't leave your precious gold at home. If you leave your precious gold unattended thieves will easily steal it.

You can store your gold in an insurance vault. Then, your gold will be protected from fire, flood, earthquake, and robbery.

Another benefit to keeping your gold in vaults is that you won’t have to pay any property taxes. Instead, you will have to pay income tax for any gains you make selling your gold.

An IRA is a way to avoid paying taxes on gold. An IRA will allow you to avoid income tax while earning interest on your gold.

Capital gains tax is not required on gold. If you decide to cash it out, you will have full access to its value.

You won't have to move your gold because IRAs are federally regulated.

Bottom line: You can have gold in an IRA. The only thing holding you back is your fear of having it stolen.

Which type or type of IRA would be best?

When choosing an IRA, it is important to choose one that suits your lifestyle and goals. You need to decide whether you want to maximize tax deduction on your contributions, minimize taxes now but pay penalties later, and if you just want to avoid taxes.

If you're saving for retirement and don't have much money invested, the Roth option could make sense. It also makes sense if you continue working after age 59 1/2 and expect to pay income taxes on any accounts withdrawals.

Traditional IRAs might be more beneficial if you are looking to retire early. You'll likely owe income taxes. The Roth IRA could be more beneficial if you intend to continue working after age 65. This allows you the freedom to withdraw some, or all, of your earnings.


  • If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal so that you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (
  • Depending on your financial situation, most experts recommend you invest no more than 5% to 10% of your retirement funds in precious metals. (
  • SEP-IRA”Simplified employee pension” For self-employed people like independent contractors, freelancers, and small-business ownersSame tax rules as traditional IRASEP IRA contributions in 2022 are limited to 25% of compensation or $66,000, whichever is less4. (
  • You can only purchase gold bars of at least 99.5% purity. (

External Links

How To

How to Open a Precious Metal IRA

Precious metals are a highly sought-after investment vehicle. Because they offer higher returns than traditional investments such as stocks and bonds, they are very popular. However, precious metals investing requires careful planning and research. Here are the basics to help you open your precious metal IRA account.

There are two types of precious metal accounts. They are paper gold and silver certificates (GSCs) and physical precious metals accounts. Each type comes with its own set of advantages and disadvantages. GSCs, on the other hand, are more accessible and can be traded. You can read more about them below.

Physical precious metals accounts consist of coins, bars, and bullion. This option is great for diversification, but it has its drawbacks. It is expensive to buy, store, and sell precious metals. Their large size makes it difficult to transport them between locations.

On the other hand, paper gold and silver certificates are relatively inexpensive. In addition, they're easily accessible and traded online. This makes them an ideal choice for those who don’t desire to invest in precious metallics. But, they're not as well-diversified as physical counterparts. They are also backed by government agencies like the U.S. Mint so their value could decline if inflation rates rise.

When opening a precious metallic IRA, make sure to choose the right account for you and your financial situation. Before doing so, consider the following factors:

  1. Your tolerance level
  2. Your preferred asset allocation strategy
  3. How much time do you have to invest
  4. No matter if you intend to use the funds in short-term trading.
  5. Which tax treatment would you prefer?
  6. Which precious metal would you like to place your money in?
  7. How liquid do you need your portfolio to be
  8. Your retirement age
  9. Where will you store your precious metals?
  10. Your income level
  11. Current savings rate
  12. Your future goals
  13. Your net worth
  14. Special circumstances that might affect your decision
  15. Your overall financial position
  16. Preference between paper and physical assets
  17. Your willingness to take on risks
  18. Your ability manage losses
  19. Your budget constraints
  20. Your desire to be financially independent
  21. Your investment experience
  22. Your familiarity in precious metals
  23. Your knowledge of precious metals
  24. Your confidence in economy
  25. Your personal preferences

Once you've determined which type of precious metal IRA best suits your needs, you can proceed to open an account with a reputable dealer. These companies can be found through word of mouth, referrals and online research.

After opening your precious metal IRA you will need to decide how big you want it to be. There are different minimum deposits for precious metal IRA accounts. Some accounts require $100 while others allow you to invest up $50,000.

As mentioned above, you can decide how much money you want to invest in your precious metal IRA. If you're looking to build wealth over a long period, you should probably opt for a larger initial deposit. If you are planning to invest small amounts each month, a lower initial investment might be better.

As far as the actual precious metals used in your IRA go, you can purchase any number of different types of investments. Here are some of the most common:

  • Bullion bars, rounds and coins in gold – Gold
  • Silver – Rounds, and coins
  • Platinum – Coins
  • Palladium Round and Bar Forms
  • Mercury – Round and Bar Forms


By: Brian Cocos, CFP®
Title: 401k Rollover
Sourced From:
Published Date: Fri, 11 Nov 2022 16:00:16 +0000

Recent Posts
Latest Featured Posts
Latest News Posts