401(k) and IRA Rollover FAQs and Answers

Top 5 questions about 401(k) and IRA rollovers

What is a rollover?

A rollover is the process of moving your retirement savings from your retirement plan at work (401(k), profit-sharing plan, etc.) into an Individual Retirement Account (IRA). Rolling over to an IRA allows you to keep your savings tax-deferred and typically gives you a broader choice of investments.

How do I roll over to an IRA?

Rolling over your 401(k), 403(b), or 457 plan to an IRA takes just three steps. Learn how to roll over.

Can I invest in the same types of investments with an IRA that I have in my employer plan?

Very likely. Wells Fargo offers a wide range of investment choices that mirror the kinds of investments in most employer plans – mutual funds, stocks, bonds, FDIC-insured CDs (FDIC-insured up to applicable limits). Here’s where to start.

Can I combine my rollover and annual contributions into one IRA?

Yes, you can combine rollovers and contributions in the same IRA. However, Traditional IRA dollars and Roth IRA dollars must be kept in separate accounts.

What if I inherit a retirement plan?

Non-spouse beneficiaries are able to roll over all or part of an inherited employer-sponsored retirement plan to a new inherited IRA. This allows a beneficiary to keep the funds growing in a tax-deferred account while taking distributions over the beneficiary’s own lifetime.

Understanding your choices with an employer-sponsored plan

I have money in a retirement plan where I used to work. What choices do I have?

There are typically four choices available to you:

  • Roll your money over to an IRA, where it can continue its tax-advantaged status and growth potential for retirement. An IRA will allow you to consolidate all of your IRA balances, giving you greater control in managing your investments.
  • Transfer the money to your new employer's retirement plan, where it can continue its tax-advantaged status and growth potential for retirement. Your new employer's plan may not allow you to transfer money in, so you need to check the plan's rules.
  • Leave your money in your former employer's retirement plan, where it can continue its tax-advantaged status and growth potential for retirement. If you have less than $5,000 in the plan, this option may not be allowed.
  • Take your money out of the retirement plan, pay IRS taxes and possible penalties, and keep the balance for yourself. You could lose 50% or more to taxes and penalties with this option.

Learn the potential consequences of withdrawing cash from your 401(k).

Can I roll my plan at work over to a Roth IRA?

If your plan at work is a Roth 401(k) or Roth 403(b), then you can roll your Roth money directly into a Roth IRA.

If you don’t have a Roth plan, you have the option to convert your funds to a Roth IRA. Just remember, you’ll have to include any converted amounts as income on your taxes. Learn more about converting to a Roth IRA.

Guidance about loans and taking money out of your plan when rolling over

When can I take money out of my retirement plan at work?

You may be able to take money out of your retirement plan at work while you still work for the company. But, typically, you are only able to take money out when you reach normal retirement age, leave the company, or become disabled, or if your employer terminates the plan. Check with your company to find out when you can take money out of your plan.

What happens if I have a loan from my retirement plan at work?

Check with your company to find out if the plan will allow you to continue making payments after you leave the company, or whether you are required to repay the balance of your loan before you can roll over the remainder.

If you decide to take your money out of the plan and don't repay the loan before doing so, the amount of the unpaid loan is added to your income for the year (which may be taxable) and may also be subject to IRS penalties, depending on your age.

What if I need to use some of the money?

When rolling over a 401(k), you may be able to take a portion of your money out of your plan at work and leave the rest in, but not all plans allow this.

If you are required to take all of your money out of the plan, you can roll over to an IRA, then take the portion that you need out of the IRA. Depending on what you need the money for, you may qualify for a waiver of the penalty tax if you take the money from an IRA rather than directly from your plan at work.

If you have access to other money, you may want to avoid taking money out of the plan. Even a small withdrawal can have a drastic effect on the growth of your retirement savings. See an example of the impact of time on your existing balance.

Can I take the money out of my plan and then decide what to do?

You can, but it's a good idea to consider the impacts of each option to make a decision before taking any money out of the plan.

  • When you take money out of the plan in a check payable directly to you, 20% of the original balance will be withheld for federal income taxes before you get the check, so you won't have the full amount to roll over. Learn the potential consequences of withdrawing cash from your 401(k) from a previous employer versus rolling over to an IRA.
  • You can still deposit the money into an IRA or your new company plan, but you must do this within 60 days.
  • If you don't deposit the withheld amount to the new IRA or company plan, it will be added to your ordinary income (which may be taxable) and may also be subject to IRS penalties.
  • The 20% that is withheld for taxes is considered normal income tax withholding, as is the case with your paychecks. If you overpay taxes for the year, you may get some of it back in a refund when you file your tax return.

Taxes and rollovers

Will I owe taxes on my rollover?

Typically you will not owe taxes on your rollover if you roll over your money directly from your company plan into an IRA. This means that your company plan makes the check payable to your IRA's custodian, and that check is deposited to your IRA.

Do I need to report a rollover on my tax return?

Yes. You will receive two tax forms — an IRS Form 1099R, reporting that you took a distribution from your former employer's plan, and an IRS Form 5498, reporting that you made a rollover contribution to your IRA. Even if no portion of your rollover is taxable, you must report it on your tax return.

More information on rollovers

Where can I find out more information on rollovers?

Call 1-877-4WF-IRAS (1-877-493-4727) to speak to a rollover specialist today.