Rollover from 401k to IRA back to 401k?
I’m 30 yrs old and just laid off from my job. I have a decent amount saved in a pre-taxed 410k from my previous employer. I was wondering:
A) Do I need to bother rolling that over to an account at Ameritrade, which I have other accounts with? I will pick the same funds at Ameritrade that I have in the 401k currently, I’m happy with their performance. Or I can keep the 401k who it’s with now.
B) If I do roll it over to an IRA, can I roll it back to a 401k at a future time when I’m employed again? Do I even need to do that?
C) If I do roll it over to an IRA, I would be doing it direct, so I should have no penalties or taxes, but is there a limit of how much I can rollover?
Permalink Submitted by Alan Spross on Sat, 2007-10-27 19:44
A) You don’t have to, but since most younger people will work for several employers, there is no reason to accumulate several dormant 401k plans over the years. You can no longer get loans from them and maintaining a coordinated investment allocation over several accounts can be difficult. Therefore, in most cases the rollover to an IRA is recommended. These company rollovers should generally be kept in a different IRA account than ones you contribute to because they will be protected without dollar limit in federal bankruptcy filings.
B) Yes, you can transfer these former employer accounts into your current plan, if the current plan will accept them. Again, most people do not, but the option is there. Once back into an employer plan, the increased balances could be used if a loan is needed, but 401k loans can be dangerous and generally are best to avoid. By keeping these rollovers separate, a current employer is more likely to accept them than if the accounts are commingled with contributary IRA accounts.
C) There is no dollar limit, and you are wise to use direct rollover to avoid the mandatory 20% withholding if you roll it over yourself. In that case, to complete the rollover you would have to front that 20% and would not get it back until you filed your tax return. If done directly, you will get a 1099R, and you would then report the rollover on line 15 of Form 1040. No tax or penalty is incurred.