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When Is a Good Time to Roll Over Your 401(k)?


An optimal time to roll over your 401(k) really depends on your individual financial circumstances, retirement goals and the specific options that are available to you. Here’s what you need to consider to determine the right time for a 401(k) rollover. A financial advisor can help you decide if and when you should roll over your 401(k) to an IRA.

When Does It Make Sense to Roll Over Your 401(k)?

A 401(k) rollover refers to the process of transferring your accumulated retirement savings from a 401(k) plan to another retirement plan like an individual retirement account (IRA) or another 401(k) account with a new employer. 

Rollovers typically happen after employees change jobs, retire or seek more investment options. Rollovers might also be necessary to consolidate multiple retirement accounts, avoid higher fees or when your new employer’s plan offers superior investment choices.

Here are 10 common items to consider when determining the time to roll over your 401(k):

  • Employment status: If you’re still employed by the company that sponsors your 401(k), check with your plan administrator to understand the rules regarding in-service withdrawals or rollovers. Some plans may allow for in-service rollovers while you’re still employed, but others may not.
  • Age requirement: If you’re over the age of 59 ½, you’re generally eligible for a penalty-free rollover of your 401(k) at any time.
  • Investment options: If you’re dissatisfied with the investment choices or fees in your current plan, you may consider a rollover to gain access to a wider range of investment options in an individual retirement account (IRA) or another employer’s plan if you switch jobs.
  • Diversification: Consider whether you want to diversify your retirement savings. Rolling over your 401(k) to an IRA can give you more control over your investment choices, allowing you to build a diversified portfolio tailored to your risk tolerance and retirement goals.
  • Employer match: If your employer matches 401(k) contributions, take note of any vesting schedules. You may need to stay with the company for a certain period to become fully vested in those employer contributions. Depending on your vesting status, you may want to wait until you’re fully vested before considering a rollover.
  • Retirement timing: Your planned retirement date can influence when you should roll over your 401(k). If you plan to retire soon, you may want to initiate the rollover to an IRA or another retirement account to consolidate your assets and begin managing your retirement portfolio.
  • Tax considerations: Moving funds from a 401(k) to a traditional IRA can be done without incurring immediate taxes. However, if you decide to convert to a Roth IRA, you will owe taxes on that converted amount. Evaluate your current and future tax situation when making this decision.
  • Fees and costs: Compare the fees and costs associated with your 401(k) to those of an IRA. Ensure that the fees of the new account align with your budget and long-term goals.
  • Financial advisor guidance: Consult with a financial advisor or retirement planning professional to assess your specific situation and receive personalized advice on the timing of your 401(k) rollover.
  • Company policies: Review your current employer’s policies regarding 401(k) rollovers, especially if you are planning to leave your job. Some employers may have specific procedures or timelines for departing employees.

How to Rollover Your 401(k)

A retired woman checking on her IRA is doing.

After you’ve determined when to do your 401(k) rollover, follow these common steps to complete the process to a new 401(k) or an IRA:

  • Open a 401(k) account with your new employer or an IRA account with a financial institution of your choice, if you don’t already have one.
  • Contact your 401(k) plan administrator and request the necessary rollover forms.
  • Complete the required forms, specifying that you want to initiate a direct rollover to your new 401(k) or IRA.
  • Provide your new 401(k) or IRA account details to the plan administrator.
  • Review and sign the paperwork, returning it to the plan administrator.
  • Monitor the rollover process to ensure it’s completed promptly.
  • Notify your new 401(k) or IRA provider of the expected rollover deposit.
  • Check for any fees associated with the rollover from both your existing 401(k) plan and your new 401(k) plan or IRA provider.
  • Review and adjust your investment strategy within the new 401(k) or IRA to align with your retirement goals.
  • Keep records of the rollover process and follow up on any tax law changes that may affect your retirement accounts. 

When Should You Avoid a 401(k) Rollover?

There are different situations when you may want to avoid a 401(k) rollover. Here are two common examples:

  • Your current 401(k) plan offers low-cost investment options and provides access to institutional shares or other unique investment opportunities that are not available in your new 401(k) plan or an IRA. 
  • If you need access to your 401(k) funds before age 59½, your 401(k) plan may allow you to make a hardship withdrawal without imposing a 10% penalty to pay off certain financial debts. However, you must meet the IRS requirements.

Bottom Line

SmartAsset: When Is the Best Time to Rollover Your 401(k)?

There is no one-size-fits-all answer to when to roll over a 401(k). Therefore, you should carefully evaluate your specific circumstances, retirement objectives and the options available to you. Additionally, make sure that you follow all IRS rules and regulations to avoid penalties and tax consequences that are associated with retirement account transactions.

Tips for Retirement Planning

  • A financial advisor can walk you through the pros and cons of making a 401(k) withdrawal. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • When planning for retirement, consider the tax laws in your state. Some have no state income tax, no tax on retirement income or a significant tax deduction on retirement income.

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