3. Contact your old 401(k) plan administrator to begin the rollover process
To transfer funds from your old 401(k), get in touch with your former employer's plan administrator and indicate that you want to roll over your account. There are two ways they can transfer your funds:
- Direct rollover. This is the easiest and safest option. You provide the old plan administrator with the account information for the receiving account, and they transfer the funds directly — either electronically or via a check made out to the new plan or IRA (not to you). If you receive a check, it's your responsibility to forward it promptly to the new institution. A direct rollover means no taxes are withheld and there's no 60-day clock to worry about.
- Indirect rollover. With an indirect rollover, the plan administrator sends the funds to you directly, and you deposit them into your new account yourself. The major downside is that your old plan is required to withhold 20% for federal income taxes. You'll receive that withholding back when you file your tax return — but only if you complete the rollover. In the meantime, you need to deposit the full original balance into your new account within 60 days, which means coming up with the withheld 20% out of pocket and waiting to be reimbursed at tax time. Most people are better off with a direct rollover for exactly this reason.
4. Keep the 60-day rule in mind
You have 60 days from the date funds are distributed from your old 401(k) to deposit them into your rollover account. This applies to indirect rollovers and to any direct rollover where the administrator sent you a check to forward.
If you miss the window, the IRS treats the full amount as a taxable distribution. You'll owe ordinary income tax on it, plus the 10% early withdrawal penalty if you're under 59½. Once the 60 days have passed, you can't undo it by depositing the money anyway.
The IRS does have a self-certification process that can waive the penalty in certain qualifying circumstances, such as a serious illness or a natural disaster affecting your ability to complete the rollover. But it's not automatic, and you shouldn't count on it.
5. Invest the funds in your new account
Once the funds hit your rollover account, you'll need to invest them. It's very uncommon for 401(k) rollovers to transfer in-kind -- your old administrator will typically liquidate your investments and send cash. That means your money will sit uninvested until you choose new investments, so don't let it linger in a default money market fund longer than necessary.
This is also a good moment to revisit your overall asset allocation. A rollover is one of the few times you're effectively starting fresh, so it's worth thinking about whether your new investment mix reflects where you are now -- your age, risk tolerance, and how many years you have until retirement.
