Rolling over a 401k is a short process when you follow the right steps. Here is exactly what to do.
What are the steps to roll over a 401k?
First, decide where the money will go, usually a traditional IRA. Second, open that IRA if you do not have one. Third, contact your 401k plan administrator and request a direct rollover, providing your new account details. Fourth, confirm the funds were sent trustee-to-trustee, not paid to you. Fifth, verify the money arrives and choose your investments. Using a direct rollover keeps the transfer tax-free and avoids the 20% withholding that applies when a check is paid to you. For help at any step, call 1-800-MEDIGAP at 1-800-633-4427.
What mistakes should you avoid?
The biggest mistake is taking an indirect rollover by mistake, where the plan mails you a check. That triggers mandatory 20% federal withholding, and you must redeposit the full original amount within 60 days or owe taxes and possibly a penalty. Other pitfalls include forgetting to invest the cash after it lands (leaving it idle), rolling pre-tax money into a Roth without planning for the tax bill, and missing that only one indirect IRA rollover is allowed per 12 months. Direct rollovers sidestep nearly all of these risks.