Money Girl Q&A: When Can I Rollover My 401(k) Retirement Plan?
In general, you can only take money out of a 401(k) in certain situations. Find out what you should do if your employer discontinues your existing 401(k) plan.
Laura Adams, MBA
Q. My employer discontinued our 401(k) plan. Do I have to wait until I leave the company to roll it over into a Roth IRA or can I do it now?
Answer. In general, you can’t take money out of a 401(k) until one of the following situations occurs:
- You reach age 59½
- You have a financial hardship
- You die or become disabled
- You are terminated from employment
- The plan terminates and no successive retirement plan is established by your employer
So, if your employer doesn’t intend to replace your 401(k) with another qualified retirement plan, then you’re allowed to do a rollover while you’re still employed. But you can’t move pre-tax 401(k) funds directly into an after-tax Roth IRA.
Your first step is to open up a traditional IRA. Then complete paperwork to authorize the 401(k) custodian to do a rollover into the new account. This allows you to continue deferring tax on your nest egg until retirement.
Once your funds are in a traditional IRA, you have the option to convert them into a Roth IRA. However, you’ll owe tax on any amounts that weren’t previously taxed.
If you want to have a Roth IRA, you aren’t required to do a conversion from a traditional IRA. You could simply open up a new Roth IRA and start making contributions to it going forward.
You’re allowed to contribute to both a traditional and a Roth IRA in the same year—as long as your combined contributions to both don’t exceed the limit for 2013, which is $5,500 or $6,500 if you’re age 50 or older.
However, there are income limits on who can make contributions to a Roth IRA. Read Your Guide to the Roth IRA, Part 1 to find out if you’re eligible for a Roth IRA.
Other Links You Might Like:
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10 Things You Should Know About 401(k) Plans
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.