Need to Roll Over Your 401(k) to a New Employer? Here's How

Getting a new job is a reason to celebrate, especially if it helps advance your career. When you make the switch, you will have to decide what to do with the 401(k) retirement account you have with your former employer.

You have a few options regarding your 401(k). Cashing it out is the worst idea because you will have to pay penalty fees and taxes. Some better options are to roll the account into an IRA or roll your 401(k) account into a 401(k) plan offered by your new employer.

Of course, your new employer will have to provide a 401(k) plan for its employees for you to roll your existing plan over. If they do, make sure you find out the specific rules of the new plan. There isn't a cost to roll over your 401(k) account from your old employer to your new employer, and there usually aren't any limits on how much you can roll over.

However, your new employer’s 401(k) may charge higher administration fees than your old plan. The investment options of the new plan could also be different.

Once you’ve learned what you can about your new employer’s 401(k) plan and have decided to roll over your old account, the process should be relatively easy. You just need to contact the 401(k) plan administrator of your old plan and have them roll over your account into the new plan.

To do a direct rollover, where the balance is automatically transferred from one account to the other, you’ll have to provide the administrator of your old 401(k) with the account number of your new 401(k), which you can get from the new plan’s administrator.

In cases where the plan administrator doesn’t do a direct rollover, they will give you a check for the amount you have in your 401(k). You’ll need to deposit the check in your new retirement plan within 60 days.

Not depositing the check from your old 401(k) into your new 401(k) or another tax-free retirement account, like a traditional IRA, within the 60-day window will cost you. You’ll have to pay income taxes and a 10 percent penalty fee because the government considers it an early withdrawal of your 401(k).

There's an exception for people aged 55 and over who can take funds from their 401(k) without incurring penalty fees. However, they still have to pay income tax on the withdrawal.

If you have more than $5,000 in your 401(k), you don’t have to move it to your new employer’s 401(k) plan. You can leave it with your previous employer’s plan if they allow it. Some plans ask you to roll the money to another 401(k) or IRA plan.