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Question:


When I switched employers a couple of years ago, I did not roll over my 401(k) plan into an IRA or my current employer’s plan. I would like to consolidate plans so I don’t lose track of funds with multiple accounts. What are my options?
-Catherine


Answer:


When I switched employers a couple of years ago, I did not roll over my 401(k) plan into an IRA or my current employer’s plan. I would like to consolidate plans so I don’t lose track of funds with multiple accounts. What are my options? Is this something that can be done?

This shouldn’t be a problem. It’s your money, after all. Just make sure that your present employer accepts transfers from other employers’ plans. If it does, then ask your former employer to execute a trustee-to-trustee rollover. That means that your retirement assets will go straight into the current plan, bypassing your bank account. If you take possession of the funds, then the clock starts ticking and you have 60 days to complete the rollover. If you don’t, then the Internal Revenue Service will consider the transaction a withdrawal, not a rollover. Most likely, a withdrawal will be treated as taxable income, and you’ll face a 10 percent penalty on top of that.
You may still be out of pocket even if you meet the 60-day deadline. Unless a rollover is done trustee to trustee, the IRS will require your old employer to withhold 20 percent of your account balance on the assumption that you’re just taking a withdrawal, not rolling the money over. If that happens – say your balance is $80,000 and your old employer correctly withholds $16,000 – you’ll get the money back from the IRS, but in the meantime the amount you put into your current employer’s plan will be short by that much, and treated as a taxable withdrawal, unless you find the money from another source.

-Conrad de Aenlle



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