Leaving a job? Get answers to common questions about rolling over an account in an employer-sponsored plan to an IRA.
1. I want to roll my retirement assets from an employer’s plan to another retirement account. How do I do that and what are my options?
If you received distribution forms from your employer, complete them using the accompanying instructions. If you need forms, contact your benefits department to obtain them. You may also be able to download forms by logging in to your plan account. If the institution holding the funds will accept our paperwork, you may complete our rollover form.
You can roll over your retirement plan assets into an IRA or move them into a new employer’s plan.
If you want to roll over into an IRA, any money in a Roth 401(k) or Roth 403(b) account will be rolled over into a Roth IRA. Non-Roth accounts can be rolled over into a traditional IRA or Roth IRA. Rollovers to Roth IRAs from non-Roth accounts are taxable. If you want to roll over your money into your new employer’s plan, ask your new employer if you’re eligible and if the plan accepts rollovers. You can’t roll over money from Roth accounts into plans that don’t offer the Roth option.
Talk to your financial professional about the best option for your situation. They will be able to assist with obtaining and completing the appropriate forms.
2. Can I roll my account balance from an employer’s plan into my current American Funds plan?
Only if your current plan accepts rollovers. Check your plan’s Summary Plan Description (SPD) or talk to your plan’s financial professional to see whether your plan accepts rollovers.
If it does, you’ll need to contact your former employer to obtain and complete a distribution request form. On the form, indicate you want a direct rollover to your current employer’s plan. You’ll also have to provide your former employer with the new plan’s name and account number and the name of the trustee. You’ll find the plan name and name of the trustee in your SPD. Ask your plan’s financial professional for the plan’s account number.
3. If I choose a direct rollover to an IRA or a new plan, will I receive any kind of confirmation?
You will receive a Form 1099-R from your old plan’s provider indicating you initiated a direct rollover. Since there is no federal income tax withheld, your entire balance will be rolled over and you’ll continue benefiting from the tax advantages. If you roll over your money into an IRA, you will receive a Form 5498 and an account confirmation from the IRA trustee or custodian. If you roll over your money into a new plan, ask your employer if you will receive confirmation.
4. What happens if I already took the cash from my account? Can I still roll over to an IRA or to a new plan?
Yes, but you must do so within 60 days of receiving your distribution to keep the tax benefits. This is known as an indirect rollover.
Your employer withholds 20% of the taxable portion of your distribution for federal income taxes. State income taxes may also have been withheld.
If you replace this withholding with your own money, you can roll over the entire amount of your distribution. The IRS will apply the amount toward your tax liability for the year, and if applicable, you’ll get the withholding back from the IRS when you file your taxes.
If you roll over your distribution but don’t replace the withholding, the amount withheld will be considered a distribution subject to taxes and possible penalties.
You can avoid this with a direct rollover, which goes straight from your old plan’s trustee to an IRA or your new plan’s trustee ― not through you. If the sending and receiving plan types are the same (i.e., IRA to IRA, 457(b) to 457 (b)), consider a transfer of assets, which is not a tax-reportable event.
5. Do I have to take my retirement plan assets when I change jobs?
Company retirement plan rules can vary, but most follow the same basic guidelines. If your account balance is less than or equal to $1,000, your plan might cash you out. If your balance is greater than $1,000 and less than or equal to $5,000, your plan might roll over your balance into an IRA selected by your former employer. If your balance is greater than $5,000, you will generally be permitted to leave your balance in the plan; however, you will not be able to contribute to the account and will be subject to any restrictions and rules of the plan.
6. Can I move my assets from one type of plan to another, for example, from a 403(b) to a 401(k)?
You can generally move the vested portion of your account from one type of plan to another as long as the new plan accepts rollovers.
Your after-tax contributions are only transferable between similar plans (for example, from a 403(b) plan to 403(b) plan), and you must move your money directly between plans.
Check your new plan to see if it accepts rollovers of Roth assets and/or after-tax contributions.
7. What if I own company stock in my plan when I leave my job?
Your employer may require you to sell your shares when you leave the plan. You can then roll over the proceeds into an IRA or to your new employer’s plan. Or, if your old plan allows, you can roll over your shares from the plan directly into a rollover IRA established through a broker.
Check with your former employer about the rules governing the buying and selling of company stock, as well as the tax consequences. It may be to your advantage to take your distribution in stock rather than cash. If you intend to continue holding the stock, ask the receiving institution if they can accept another company’s stock.
8. What if my new employer won’t let me roll the balance from my old plan into my new plan?
You can move your money to a rollover IRA account, or if permitted by your former employer, you can also leave your money in your former employer’s plan. If you choose the latter option, you can no longer contribute to the account. With both options, your money has the opportunity to grow tax-deferred.
9. What happens if I leave my employer and I have an outstanding loan from my plan account?
Keep in mind that most plans require that loans be repaid when you leave. If you roll over your remaining account balance to a new employer’s plan, you may also be able to roll over the outstanding balance of your loan to your new employer’s plan. Check with your new employer to find out if the loan will be accepted by the new plan. You cannot roll over your loan to an IRA.
If you can’t move the loan to your new plan, and if you don’t repay the loan within the time allotted, the outstanding balance will be treated as a withdrawal, subject to federal and applicable state and local taxes. If you’re under age 59½, you may also have to pay a 10% early withdrawal penalty unless you qualify for an exception.
10. Can I roll my retirement plan money over if I’m older than 72?
Yes, provided you take your required distribution from the plan before you roll over your money. The money you receive from required minimum distributions cannot be rolled over.
11. What happens to my retirement money when I reach age 72?
The IRS says you must begin withdrawing money from your employer plan account(s) by April 1 following the year you turn 72 or retire, whichever is later (unless you own 5% or more of the company). Withdrawals from traditional IRAs must begin by April 1 following the year you turn 72. If you don’t withdraw the minimum required amount, the IRS will penalize you with a 50% tax on any amount that should have been withdrawn but wasn’t. Roth IRAs are not subject to required minimum distributions.
The SECURE Act increased the age when required minimum distributions (RMD) must begin from 70½ to 72, effective for individuals turning 70½ on or after January 1, 2020. If you reached age 70½ before this date, you are still required to take RMDs.
1. If I decide to open an IRA, do I have to roll over my entire account balance?
It depends on the terms of your plan. Some plans may allow you to roll over any portion of your vested account balance.
2. Can I roll my retirement plan balance to more than one IRA?
3. Can I roll a portion of my retirement plan balance to an IRA or my new employer’s plan and take the remaining portion in cash?
Yes, you can take a portion of your retirement plan balance in cash and either move the remaining balance to a new employer’s plan or roll to an IRA. However, the portion taken in cash will be subject to applicable taxes, and possible penalties. Check with your new employer to find out if the rollover will be accepted by the new plan.
4. If I make contributions to my rollover IRA, can I still roll the IRA into an employer plan?
You may be able to transfer your IRA balance into your new plan if the new plan accepts rollovers from IRAs. Before rolling your money into a new plan, you should compare the plan’s investment options and withdrawal rules with those of your IRA. You may give up some flexibility or face stricter requirements if you make the move.
If you rolled after-tax deferrals from an employer’s plan into a traditional IRA, you may not subsequently roll those after-tax deferrals to another employer’s retirement plan.
5. Can I roll my retirement assets directly into a Roth IRA?
Yes. After-tax or Roth contributions from an employer’s plan can be rolled over directly into a Roth IRA tax free. If you roll over non-Roth assets to a Roth IRA, while you may not be required to withhold taxes, the amount rolled over will be included in your gross income for federal and/or state income tax purposes.
Talk to your financial professional about your options.
6. What should I look for in my choice of an IRA?
Essentially the same things you look for in any prudent investment: diversification, built-in flexibility and sound, proven management. Mutual funds — like the ones in the American Funds family — are a popular investment choice for all kinds of IRAs because they offer all of these features.
7. Why should I roll my retirement plan money into an American Funds IRA?
American Funds is one of the most experienced investment managers in the United States. We’ve been managing investors’ assets since 1931. We take a conservative, long-term approach that’s consistent with the needs of most people saving for the future. That’s why most of our shareholders’ investments are intended for retirement.
8. Can I transfer the American Funds shares held in my retirement plan account into an IRA?
It depends on your retirement plan. Check your plan’s SPD to see when you’re allowed to take a distribution. If you qualify to take a distribution (other than a hardship distribution or a required minimum distribution), you can request a direct rollover to an IRA.
Rollovers from retirement plans to IRAs are tax-reportable, however, direct rollovers are not taxable if completed as direct rollovers.
To determine if you may continue to hold your American Fund shares in the same share class, speak with your financial advisor or you may call us at (800) 421-4225.
9. If I roll my account into an American Funds IRA, what sales charges or account fees will I have to pay?
It depends. Generally, an amount already invested in American Funds can be rolled over into an American Funds IRA without paying any up-front sales charges. Any amount held in investments other than American Funds is subject to applicable sales charges.
A one-time $10 setup fee will be deducted from your account when you open an American Funds IRA. There is also an annual custodian fee (currently $10).
10. Why do I have to designate a financial professional for my American Funds IRA?
American Funds are sold only through financial professionals because we believe that their expertise and guidance are essential to successful financial planning. Financial professionals are there to answer your questions and help you through the decision-making process. If you would like a referral to a professional in your area who is familiar with our funds and services, please call us at (800) 421-4225.
1. Can I cash out of my retirement plan?
Yes, however, it may be subject to 20% mandatory tax withholding and a 10% early withdrawal penalty.
2. Are distributions from my Roth 401(k) and Roth 403(b) accounts taxable?
Qualified withdrawals from Roth 401(k) or Roth 403(b) accounts, including earnings, are tax-free. Only the earnings portion of nonqualified withdrawals from Roth accounts is taxable. Withdrawals from Roth accounts are tax-free if the account was established at least five years before, and if you’re at least 59½ years of age or if withdrawals are made because of disability or death. Withdrawals from non-Roth accounts are generally taxable.
3. Are there exceptions to the 10% early withdrawal penalty?
If you're under 59½ when you cash out of your plan, you may also be subject to a 10% early withdrawal penalty. Certain exceptions include:
- If you’re 55 or older when you leave your job.
- Distributions due to death, disability and certain medical expenses.
- You take the distribution as part of “substantially equal payments” over your lifetime.
Ask your financial professional for more information about these and other exceptions.
4. Do I have to leave my job to withdraw my retirement plan money?
Not necessarily, although that’s what most plans require. If your employer terminates your retirement plan, or if you become disabled, you may be given an opportunity to take a distribution. Also, some retirement plans permit you to draw on your retirement plan money after a fixed number of years or upon reaching a certain age, such as 59½ or the plan’s designated retirement age.
5. Is there any portion of a distribution that’s tax-free?
Yes, if the distribution includes after-tax contributions or Roth contributions. Non-Roth after-tax contributions can be distributed tax-free, but earnings are taxable. Qualified distributions from Roth 401(k) or Roth 403(b) accounts are tax-free. However, the earnings portion of nonqualified Roth distributions is taxable.