Maybe you have just left your job, or maybe you simply want to take advantage of the investment options offered by a specific IRA plan. In any case the first step is to make sure you follow the individual retirement account Eligability regulations. The next step to switching your account to an IRA is to do a rollover.
When you do a 401k to IRA plan Rollover you will be given a check for 80% of the account value of your 401k and will have 60 days to deposit the money into an IRA. If you fail to deposit all of the money into the account, however you will have to pay any taxes and penalties on that money as it will be treated as a simple withdraw.
There is just one problem with doing this, and that is you will only get a check for 80% of your account and expected to deposit 100% into your IRA. For instance if you are rolling over a $100,000 account into an IRA, you will be given a check for $80,000 and expected to deposit $100,000 into your IRA plan.
The rest of the account will be withheld just in case you need to pay taxes on it. This means you will have to come up with the additional $20,000 if you do not want to pay taxes on it, which can be a bit tricky.
Something to keep in mind here is that the $20,000 is not permanently gone; you get that money back when you do your taxes. So if you can come up with the additional money you will be reimbursed later on.
This is not the only option you have to get money out of your 401k early. There are other withdrawal options that allow you to take money from the account. However, you will have to pay taxes and an early withdrawal penalty from any money that you simply withdraw.
Tags: 401k to ira rollover, Rolling Over Your 401k to an IRA