Retirement account rollovers and transfers

Retirement account rollovers and transfers

Making rollovers or transfers between different plans or between different money managers will also be part of your retirement account activities. For example, when you change jobs, you'll want to either transfer your 401(k) money into your new employer's 401(k) plan or transfer it to your own IRA.

If you transfer it to an IRA account, you generally gain more control over the account since you can invest in a virtually unlimited number of mutual funds or other financial products.

But transferring your old 401(k) funds into your new employer's plan may be the best option, providing it is a relatively good plan. By keeping the money in a 401(k) account you still should be able to borrow against the balance if you need to. This isn't allowed with IRAs.

Don't touch transferred funds

However, when you transfer your retirement account money from one account to another, don't touch the money yourself. Let the two employers or the two financial institutions transfer the money for you.

Let's say you want to transfer some IRA funds from one mutual fund family to a new fund with a different family. Call up the new family and let the new fund contact your old family.

If you ever receive rollover money directly, the account administrator must withhold 20 percent of the disbursement. This helps to ensure that you pay the proper amount of income tax on the distribution.

So to avoid tax hassles and lost investment returns on the withheld amount, always have the institutions transfer your money. Don't ever take possession of retirement money that's intended for a rollover or transfer.