Process

• The process for rolling over your 401k plan into an IRA involves taking receipt of the funds you are rolling over. You must contact your plan administrator and have your 401k funds sent to you. When you do this, the plan administrator will send you your 401k money, withholding 20 percent for income taxes. Then you must open a new IRA plan within 60 days and deposit the money into the account. The money withheld for taxes will then be forwarded to your new account.
  
  

Significance

• The significance of rolling over your 401k is that you do not get penalized for this transfer. Even though you take receipt of the funds, the IRS allows a tax-free rollover of your 401k plan. You may only make one tax free rollover per 12 months with the same funds, and you may not make another tax-free rollover from the same account within 12 months of your first rollover.
  
  

Benefit

• The benefit of using a rollover is that you are in control of your retirement account funds. You get to choose which IRA account you want to open or, if you decide not to roll over the funds, you may keep your funds and invest them any way you choose.
  
  

Disadvantage

• The disadvantage to using a rollover is that you may be taxed and penalized if you fail to perform the rollover. A rollover that is not completed within 60 days is subject to income tax. An additional penalty of 10 percent is assessed if you are under 59 1/2.
  
  

Considerations

• Consider using a transfer. A direct transfer is also known as a trustee-to-trustee transfer. These transfers may be made at any time, and there is no limit to the number or size of transfers you may make. You also do not need to worry about opening a new retirement account within 60 days since the administrator handles the transfer of funds.