401 questions about 401k's.
December 11, 2015 10:54 AM   Subscribe

After 2 years of asking my husband finally got around to trying to move the funds from an old 401k & rolling them over into his current 401k. Unfortunately mistakes were made & instead of simply having the money transferred from one account to another he closed the old account & withdrew all the money. Now it appears we are going to take a tax + 20% penalty hit on the amount. Is there anyway to get the money into his current 401k without losing money?

Sorry if I use the wrong terms, or misunderstand how 401ks work in the US, I am used to dealing with my retirement funds like this in Australia where different names & rules apply. Which I think may have been part of the problem. I asked my husband to "rollover" his old 401k into the 401k he has with his current job. We instead received a check from the old 401k made out to him, the current 401k people are being super unhelpful & have simply gone we can't take that check even if you sign it over to us, so I was like well we will deposit it & write you a new check. They told us if we did that we'd have to pay tax & penalty.

Is this the case?
Is there anyway to get the money into the new 401k without paying tax etc?
Do we just have to take the hit & then deposit what's left?
Can we just pay the fees, keep the money & in a few months move it & all our 401k business to another more helpful company?

Worst comes to worst the lost money isn't huge amount but I'd like to avoid it if possible.

Other information that may be important. We've had the check only a week. We are in Indiana.
posted by wwax to Work & Money (13 answers total) 3 users marked this as a favorite
Is there a reason you're not trying to roll the old 401K over into an IRA?

That may be part of the problem - 401K's are typically opened by employers on behalf of their staff, but IRAs are a tax-exempt account that individuals can open themselves. So while I've frequently rolled over money from 401K's from an old job into my own IRA, I've never heard of money being rolled over from one 401K into a new 401K.
posted by EmpressCallipygos at 11:07 AM on December 11, 2015

from irs.gov
60-day rollover – If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days. Taxes will be withheld from a distribution from a retirement plan (see below), so you’ll have to use other funds to roll over the full amount of the distribution.

So, you need to cash the check you received (which is only 80% because they withheld the taxes), make a deposit of 100% of the amount (which means you have to find the other 20% from somewhere else) and then you can get refund of the taxes that were withheld by the first 401k people.
posted by metahawk at 11:07 AM on December 11, 2015 [1 favorite]

You can move the money into an IRA to avoid the fees and taxes, and you have 60 days, so you are fine if you've only had it for a week.

There are several thousand companies that will be delighted to make this very easy for you; they want your money. If you have a broker that you like, start there. If not, Vanguard and Fidelity are safe choices.
posted by Mr.Know-it-some at 11:09 AM on December 11, 2015 [3 favorites]

If the new 401k company won't take the money because it went through your hands, you can also use it to open an IRA and it will keep its tax protected status. That would be a regular, not a Roth IRA since you haven't paid any taxes on the income.
posted by metahawk at 11:10 AM on December 11, 2015

I've never heard of money being rolled over from one 401K into a new 401K.

I've done this 4 times over the last 15 years, as recently as last month. I thought this was pretty SOP when you changed employers.
posted by archimago at 11:13 AM on December 11, 2015 [7 favorites]

So I just mentioned to my husband hey it looks like we can put this in an IRA and he goes oh wait,I told you the wrong thing all these months, it wasn't in a 401k it was in an IRA. Apparently it ended up there as he took too long to roll over the 401k or something. So now we are not only dealing with my lack of knowledge about how US retirement plans etc work apparently my husband who has lived here all his life has no idea either.

Please stay tuned for next weeks question regarding divorce proceedings in the US.

So not sure if the mods will let me edit my question to reflect these new facts, but assuming the money came from an IRA *facepalm* I'm assuming I can just open another IRA & deposit it within the 60 days like I could if it had been a 401k.
posted by wwax at 11:40 AM on December 11, 2015

You can definitely roll a 401k into a new 401k typically pretty easily, but it sounds like the new 401k is being annoying about it for whatever dumb reason.

However, in the long run it's better just to open something called a rollover IRA (you should be able to do this for free from Vanguard or Schwab) and just roll the money into there and avoid all tax penalties. The benefit there is you get a lot more flexibility on what you can invest in (versus a very limited number of choices in an employer sponsored 401k) and fees are typically much much less in a standard rollover IRA versus 401k. It's a net positive for you.

Bonus is that you'll have a spot to roll any new 401ks into as your husband leaves jobs, even if his new job doesn't have a 401k to roll into. This is what I've done with 3-4 401ks and I've been super happy with it.

I'd say just give Schwab or Vanguard a call, they should be able to set it up really easily for you.

Edit given new info: Sounds like they converted your 401k into an IRA since you left it at the old company for so long. Point is the procedure is just the same. Open a new IRA (rollover or otherwise) at Schwab or Vanguard and send the money their way. Call them up, they've done this a million times.
posted by jourman2 at 11:43 AM on December 11, 2015 [1 favorite]

the professionals at any of the companies that do this should be able to easily walk you through it over the phone. the easiest solution is probably to go to the company that's managing his current 401k and do what they tell you to do.
posted by nadawi at 11:45 AM on December 11, 2015 [1 favorite]

The same rule -- 60 days -- still applies, you just have to choose a new trustee (bank).

I'd recommend Vanguard. I'll also recommend the Bogleheads wiki as a great place to start learning about all of this stuff.
posted by Dashy at 11:46 AM on December 11, 2015 [4 favorites]

3rd the recommendation for Vanguard as a trustee. Call them, they've heard it before, they will help.
posted by Dashy at 11:46 AM on December 11, 2015 [1 favorite]

I recommend Vanguard as well. I've rolled over three 401Ks (yes, I'm an indavertant job-hopper) into a Vanguard IRA at this point and the process with Vanguard is dead simple. Their customer service people are very helpful too if you want someone to talk it all out with you.
posted by thereemix at 11:49 AM on December 11, 2015

The term you're looking for, when you call an investment company (I use Charles Schwab, but Fidelity and Vanguard are very similar) is "rollover IRA". After I left my first job, I rolled over the 401(k) into a Schwab Rollover IRA. I did it again, after I left my second job to go to grad school. It was really easy - I already had a Schwab account, but I don't believe you need one in order to open a rollover IRA. I highly recommend doing this, rather than rolling into an existing 401(k) anyway, you have so many more investment options and the same tax benefits.
posted by echo0720 at 8:59 AM on December 12, 2015

Thank you everyone for your answers. I've marked them all best answers as they were all very helpful. Thanks for not making me feel like an idiot for not knowing this stuff, but I am now planning on learning. I have no idea why the various people we spoke to at Fidelity (his current 401k) didn't mention this as an option they just kept telling us we screwed up & would take a huge tax hit. I guess they don't want our business so it's off to Vanguard to start an IRA.
posted by wwax at 9:58 AM on December 12, 2015 [1 favorite]

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