The 401(k) Rollover: A Guide for Beginners

A 401(k) plan is one of the most common retirement savings vehicles used by American workers.

The 401(k) gets its name from section 401(k) of the Internal Revenue Code, which allows employees to make pre-tax contributions from their paycheck to a retirement account.

Many employers offer matching contributions up to a certain percentage, providing a great incentive for participation.

Over the course of a career, people often change jobs multiple times. Each change usually means starting over with a new 401(k).

By retirement age, some folks have accumulated small 401(k) accounts all over the place. Consolidating these funds into one Individual Retirement Account (IRA) through a rollover makes retirement planning much more straightforward.

Understanding How 401(k) Plans Work

A 401(k) retirement plan is set up by a worker’s employer. Employees can contribute a percentage of each paycheck into the 401(k) on a pre-tax basis.

For 2022, the maximum employee contribution is $20,500 for those under age 50. Those 50 or older can add an extra $6,500 catch-up contribution.

Many employers provide matching contributions up to 3-6% of income.

For example, if the match is 5% and the employee contributes 5% of their pay, the employer would add another 5% to the account as free money. This doubling of retirement contributions is a major benefit of 401(k) participation.

The contributed funds are invested based on options allowed by the plan. Investment choices are usually mutual funds that cover stocks, bonds, money markets, and other assets. Employees can select how they want contributions invested.

The Problem with Multiple 401(k) Accounts

When workers switch employers, they usually can’t continue contributing to the old 401(k). The account typically stays with the former employer. Workers starting a new job then begin contributing to the next employer’s 401(k) plan.

Over a career with job changes, this pattern leads to a scattering of small 401(k) accounts. Keeping track of the details requires logging into many different websites and deciphering cryptic quarterly statements.

The limited investment options in a 401(k) may not be ideal for proper asset allocation anyway. The costs and fees charged can be excessive compared to other choices available with IRAs. Workers leaving a job have good reason to move 401(k) funds elsewhere.

What is a 401(k) Rollover?

A 401(k) rollover is the process of moving funds from an old employer’s 401(k) plan into a new retirement account, typically an IRA. The IRA can be with any provider the individual chooses. There are no tax penalties or withholding as long as the rollover follows IRS rules.

This contrasts with simply cashing out a 401(k), which triggers income taxes and penalties. With a rollover, the retirement funds transfer directly into another qualified retirement account without tax liabilities. The funds keep their tax-deferred status because retirement savings stay earmarked for the future.

Steps in the Rollover Process

Doing a 401(k) rollover involves several key steps:

  • Identify all existing 401(k) accounts. Locate the right contact info and account numbers for old workplace plans.
  • Choose Traditional or Roth IRA. Select if withdrawn funds will go into a Traditional pre-tax IRA or Roth after-tax account.
  • File paperwork and initiate transfers. Contact each 401(k) provider to begin the rollover process. Fill out their required forms.
  • Select an IRA provider. Choose where to open the new IRA account that will receive the incoming 401(k) funds.
  • Combine multiple 401(k)s. For those with more than one account, decide on consolidating funds into one IRA.

How Capitalize Simplifies 401(k) Rollovers

The 401(k) rollover process sounds straightforward but can get complicated in practice. provides specialized assistance to make it much easier. Their free online platform streamlines the entire rollover procedure start to finish. offers user-friendly tools to:

  • Find old 401(k) accounts. Their database searches by employer name and guides users in locating account details.
  • Manage paperwork and procedures. Experts handle all administrative tasks required by 401(k) providers.
  • Compare IRA choices. Users can select the best IRA provider based on factors like fees, investment options, and reviews.
  • Facilitate the transfers. ensures the safe, tax-free movement of funds into the selected IRA.
  • Consolidate multiple accounts. Users can efficiently combine dispersed 401(k) plans into one centralized IRA.

Capitalize reduces the hassle involved in DIY 401(k) rollovers. Their experts manage the required procedures with 401(k) providers. Users get guidance in picking the ideal IRA destination for their retirement savings rollover.

Choosing Between Traditional and Roth IRAs

In a 401(k) rollover, investors must decide whether to place funds in a Traditional IRA or Roth IRA. The difference relates to when taxes apply.

  • Traditional IRAs allow current tax deductions on contributions. Investments grow tax-deferred. Withdrawals in retirement get taxed as ordinary income based on the prevailing rates at that time.
  • Roth IRAs offer no tax breaks upfront. Contributions come from after-tax income. However, qualified Roth withdrawals in retirement are 100% tax-free.

Younger investors tend to favor Roth IRAs to take advantage of decades of tax-free growth. Roth IRAs also avoid required minimum distributions that can bump retirees into higher tax brackets.

Tax Implications of 401(k) Rollovers

A major benefit of 401(k) rollovers is their tax-free nature when done properly. The withdrawn 401(k) funds get directly deposited into an IRA or new employer’s plan with no taxes or penalties. A few key points on the tax rules:

  • Rollover contributions don’t count toward annual contribution limits.
  • No 10% early withdrawal penalty tax applies.
  • Funds maintain tax-deferred status since they stay in a retirement account.
  • Any after-tax or Roth 401(k) assets can go to a Roth IRA tax-free.

As long as the rollover finishes within 60 days, the IRS treats it as a tax-free trustee-to-trustee transfer.

Consolidating Multiple 401(k)s into One IRA

Throughout a career, many people build up an array of small 401(k) balances from past employers.

Benefits of IRA rollover consolidation:

  • Reduced account fees compared to multiple 401(k)s
  • Unified investment strategy and asset allocation
  • Simpler to manage a single IRA account
  • Improved savings visibility and retirement planning


Moving 401(k) savings from a former employer into an IRA or new workplace plan better preserves retirement funds.

Their expert specialists handle the administrative paperwork and procedures required by 401(k) providers. Users get an easy way to identify old 401(k) accounts, evaluate IRA choices, and consolidate funds into one account.

With simplified 401(k) rollovers, Capitalize also ensures investors avoid tax penalties and make the optimal IRA selection. Consolidating dispersed 401(k) plans into a centralized IRA provides retirement savings continuity and control.

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