Qualifying Event for 401(k) Asset Rollovers to an IRA

Rolling over 401(k) assets to an IRA because of a qualifying event allows you to move the money from the 401(k) to the IRA without paying taxes or penalties. IRS rules determine what events qualify for a penalty-free rollover between accounts. Before you roll over your 401(k) assets to an IRA, make sure your event qualifies under IRS regulations.

Leaving Your Job

You can roll over 401(k) assets into an IRA if you're leaving the employer who sponsors your 401(k). The circumstances of your job separation do not matter. You can roll over the assets into an IRA without penalty if you were fired, quit or laid off. You'll need to open the IRA yourself and then contact your 401(k) manager to set up the transfer. If your 401(k) plan sends you a check, you only have 60 days to from the day you get the check to put the money into the IRA without tax penalties. If you cash the 401(k) out instead of rolling the money into another qualified plan, you will incur tax penalties.

Permanent Disability

If you become disabled on a permanent basis and can no longer work, you can transfer your 401(k) assets to an IRA. Since you can no longer work, you're separated from the employer who sponsored the 401(k) plan. You're responsible for setting up an IRA account and speaking to the 401(k) plan manager to initiate the funds rollover. If your 401(k) plan sends you a check for your account balance, you must get the money into an IRA within 60 days of receipt to avoid tax penalties.

Plan Termination

If your employer has decided to terminate the 401(k) plan and doesn't offer a new defined contribution plan in its place, you can roll over your assets into an IRA. For example, if your employer is getting rid of the 401(k) plan and switching to a defined benefits plan instead, such as a traditional pension plan, the event qualifies for a rollover to an IRA. You can't put your 401(k) assets into the pension plan since you can't contribute to it. However, if the employer is switching to a SIMPLE IRA plan instead, you can roll over your 401(k) assets, as those have a place in the new plan.

Considerations

Once you reach 59 1/2, you'll be eligible to take distributions from your 401(k) plan. While it's not a traditional rollover, you can take the distribution money and put it into an IRA instead. You can cash out a 401(k) at any time, without a qualifying event, and put the money into an IRA. However, you'll be subject to tax penalties for doing so and have to pay taxes on the money.

Photo Credits

  • Creatas/Creatas/Getty Images

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.