Many individuals change jobs multiple times in their overall employment life. There are many reasons to do so; one of the most common reasons is to increase income or get a hike in salary. And a significant number of employers provide a 401(k) retirement savings account to their employees. With this move, having multiple accounts is a normal thing. But people ask, How long do I have to rollover my 401(k) from a previous employer? And this concern needs to be explained in simple words to avoid any mistakes and prevent losses.
What Is a 401(k) Rollover?
As we all know that the 401(k) account is a growth-oriented retirement savings account. If we talk about the 401(k) rollover, then it is the process of transferring the funds of an account to an Individual Retirement Account (IRA) or 401(k) without using the hardship withdrawal method. This rollover will prevent early penalties and tax implications. So, the answer to the question, Do I have to pay taxes when rolling over a 401(k) to another 401(k), is no.
There are two main types:
- Direct rollover: This is done using the direct method, where both account provider (one in which the funds are there and another in which the funds are going to be transferred) completes this transaction. Here, the account holder doesn’t get any money in their hands throughout the transfer.
- Indirect rollover: This is a cash-out method where you receive the money and must deposit it into another retirement account within a certain time frame. In the case where you fail to deposit the money within the time frame, you need to face a 10% early withdrawal penalty and tax implications as well.
Both methods can be used to rollover the 401(k) account of a previous employer to the new employer. Your decision will impact the concern; how long do I have to rollover my 401(k) from a previous employer?
How Long Do I Have to Rollover My 401(k) From a Previous Employer?
As mentioned, you can rollover all your 401(k) funds associated with your previous employer using various methods, so the concern, How long do I have to rollover my 401(k) from a previous employer, is answered partially. However, there are different rules based on the transfer methods. Let’s discuss them:
60-Day Rule (IRS Requirement)
This is a famous rule applied by the IRS for managing the indirect withdrawal. This implies that if you have opted for indirect direct withdrawal and cashed out from the 401(k) account, then you have 60 days to deposit this fund into a new IRA account or another 401(k) account. Failing to do so can make this cash out a normal distribution, which is taxable.
Also, if you are under the age of 59½ years, then you need to face a 10% early withdrawal penalty. This is a risky way to transfer funds from one retirement account to another.
Time Limits of Direct Withdrawal
In the case of direct transfer, no time limit is there. You need to worry about anything because this will be done between the account providers. You are only included till the document verifications; after this, providers are the only parties of participation. In this, the money will never come to you. You can also leave the account with the previous employer because the growth will be continued, and you can also claim it in retirement.
Why Should You Consider a Rollover?
There are various reasons that you find important to consider rolling over a 401(k) of a previous employer:
Consolidation: Combining old 401(k)s into one account makes it easier to manage your retirement savings, track performance, and maintain a clear financial picture.
More Investment Options: If you are rolling a 401(k) to an IRA, then it can typically provide access to a wider range of investment choices, including stocks, ETFs, mutual funds, and bonds. Not like some fixed employer-defined investment options.
Lower Fees: Employer 401(k)s often include administrative and fund-related fees. IRAs may offer lower-cost alternatives, allowing you to keep more of your investment growth.
Better Control: With the new retirement account, where your contact details are also updated, you can decide where to invest, adjust allocations, and select providers, helping you align your retirement plan with your long-term goals.
How to Roll Over a 401(k) to a New Employer?
For rolling over the 401(k) associated with the previous employer to a new employer, you need to follow some pre-defined steps:
- Choose Your Destination
This step is the initial one. You need to decide whether you are rolling the funds to an IRA or a 401(k) account. - Contact the New Provider
If you are choosing a new IRA, then open the account. In this case, you want to transfer funds into a 401(k) account. So, contact your current employer for the same and talk about this rollover. - Request a Direct Rollover
Then you need to ask the former employer to proceed with rolling over the funds of the old 401(k) account into the new account with the direct method to avoid penalties and taxation. Provide the necessary details to initiate the transfer process. - Confirm the Transfer
Monitor the transaction and regularly verify the transfer status. Rectify any issues generated by the transfer to complete it as soon as possible.
What Happens If You Don’t Roll Over 401(k) Within 60 Days?
The 60-day time limit is only for the indirect transfer where the account holder cashes out the money and has 60 days to deposit it in the new 401(k) or IRA account. In the question, How long do I have to rollover my 401(k) from a previous employer, it is necessary to understand what happens if this time frame has passed.
If this 60-day deadline is crossed, then the cash out is considered a normal taxable distribution or a normal income. In the case you are under the age of 59½ years, you need to face a 10% early withdrawal penalty. Also, this fund will not get deposited now after the deadline has passed. You will permanently lose the chance of tax-deferred growth.
Know more about, How Long Does It Take to Get Money from 401(k)?
Factors That Affect When I Rollover My 401(k) From a Previous Employer
Some factors can affect the transfer time. Noticing these factors can ensure a smooth transfer of funds from the old account to the new account:
- Type of Rollover: This is one of the most significant factors that directly affect the transfer timeline. Even in the indirect rollover the transfer will completely depend on the account holder, meaning the person who has taken the distribution.
- Account Providers: The process followed by providers also affects the transfer. Some savings account providers process these kinds of transactions quickly, and some take time to verify details.
- Documentation: In the case where the paperwork is done properly, the process may be delayed or even held up.
- Rules: Some plans include different rules and norms for such a type of transaction from account to account or in any of these situations.
Methods of Rolling Over Timeline
Below is the summary of all transfer methods with the timeline expectation:
| Action | Time Limit | Tax Consequence |
| Direct Rollover | No time limit | No taxes or penalties |
| Indirect Rollover | 60 days | Taxes & 10% penalty if missed |
| Cashing Out | Immediate | Taxed + penalty if <59½ |
| Leave with Employer | Indefinitely (if allowed) | No immediate consequence |
Conclusion
The answer to the concern, How long do I have to rollover my 401(k) from a previous employer, is that the time limit will depend on the transfer methods. You can transfer the funds either using the direct account-to-account method or by taking a distribution indirectly and depositing this cash out to the new 401(k) account within the 60-day time frame. Having a retirement savings plan like a 401(k) is very important to ensure a secure financial future. Managing these savings accounts is also necessary to get the best income stream in retirement.
Frequently Asked Questions
How long can my previous employer hold my 401(k)?
The employer doesn’t have any right to hold your 401(k) account; your money is always yours. Yes, if you have an outstanding 401(k) loan, then this can happen. You can either withdraw or transfer your 401(k) funds to get control over them.
Is there a time limit to rollover a 401(k)?
The time taken for the transfer of funds depends on the type of methods of transfer method and some other factors. In the case of indirect transfer, you have only a 60-day time frame to deposit the funds into a new IRA or a 401(k) offered by the current employer.
Is it better to keep 401(k) with old employer or roll over?
This depends on your future goals. Many people leave their 401(k) account with their old employer when switching jobs. And some people find it more optimal to roll over the funds to another account for better control.
