With employees changing jobs more often, and typically not staying with one employer from the time they begin working until retirement, workers often end up with multiple 401(k) accounts from their previous jobs. To make it easier to manage your money, you may wish to close some of these old accounts, either after you have changed jobs or during retirement. Fortunately, you can easily move money from your old 401(k) into a rollover account.
Prepare a Rollover Account
Unless you want to take a cash distribution from your old 401(k) account and pay the associated taxes and potential early withdrawal penalties that go along with it, you will need a rollover account in which to deposit your money. This rollover is fully free from income taxes and early withdrawal penalties, even if you are under 59 1/2 years old. This can be a traditional IRA that you already have opened or an IRA account that you open specifically for the purpose of receiving rollover funds from your old 401(k). If you are still working and have another active 401(k), depending on the policies of your current employer, you may be able to use its 401(k) plan to receive funds from your old plan. You may be able to do this even if you have not worked at your current job long enough to contribute to the plan through salary deferrals.
Contact the Trustee
Contact the trustee of the plan that will be receiving the money from the old 401(k) plan. If the plan is an IRA, contact the IRA trustee. If it is your current employer's 401(k) plan, you can contact your human resources department for direction as to how to proceed. The trustee will need information such as the name of the trustee or company that manages the old 401(k) plan, and account numbers are helpful in tracking down the correct account. The receiving plan's trustee will request a withdrawal of all of the funds from the old account and that the trustee of that account send all of the proceeds to him to be deposited into the new rollover account.
Verify the Funds
Give the trustee time to execute the transfer but follow up to make sure that the money goes into your new account correctly. It may take a few weeks for the transfer to be finalized. When your old 401(k) account has a zero balance, many trustees close the account automatically. If the trustee does not close the account, you will need to request that it close the inactive 401(k).
You will receive a Form 1099-R from the trustee of your old 401(k) that will show the total amount that was transferred to the rollover account as a distribution from the account. It will be labeled with exception code G. You will need to show this Form 1099-R on your regular income tax returns. If you file Form 1040, you will show the total amount of the distribution on line 15a, and with a trustee-to-trustee transfer, show zero in line 15b, since none of the distribution is taxable.
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