How to Transfer Your 401K

Employer-sponsored 401K investment accounts are one of the best ways to save for the future. 401Ks, however, are retirement accounts that are unique to employers, so when you change jobs your new deductions go into a new 401K.

What do you do with the previous 401K? You have options, like leaving it in the previous plan. Most often though, transferring a 401K, also known as a “rollover,” makes the most sense.

Reasons to Transfer Your 401K

There are several reasons to transfer your 401K:

  • To consolidate a previous 401K account into a new one for easier management
  • To lower investment fees and expenses of the current 401K
  • To have access to more investment options

If you want to consolidate your 401K accounts, from your previous employer’s to your current employer’s, you’ll want to speak with the plan administrator to see if it’s possible. Some plans will accept outside 401Ks—some will not. If it is possible, you’ll need to work with the plan administrator to walk through the process which will involve completing paperwork including a transfer form.

Alternatively, you may decide you’d prefer to move your 401K into an IRA account, giving you more control over your investment. IRAs often have lower costs, too. This is usually the best option.

With the IRA, you have two choices: Traditional or Roth. Moving a 401K into a Traditional IRA does not create a tax liability. Moving into a Roth IRA does come with tax implications, even moving you into a new tax bracket. Regardless of which option you choose, you’ll need to complete paperwork to authorize the transfer.

Do You Need a Signature Guarantee to Transfer a 401K?

The simple answer is, under the majority of circumstances, no—you should not need a signature guarantee to transfer your 401K. Most 401K transfers – and stock transfers in general – are done via electronic transfer of records from one broker custodian to another. Since there is no transfer of physical stock certificates, there is less risk involved with the transfer. Effectively, ownership is being retained by the individual.

You might find you need a signature guarantee, also called a medallion signature guarantee, to transfer your 401K if:

  • You’re transferring your 401K into an account that is under a different name.
  • You’re transferring or selling the 401K securities to another individual, not designated through a beneficiary transfer.

These are definitely the exceptions for 401K transfers. Should you find yourself transferring a 401K and in need of a signature guarantee, contact us and we’ll be glad to assist.

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