Rolling over my 401K

[Jamj2]

I live in California, and I just took a new job. I have a 401k account with my old company, and I want to roll it over to my new company. Are there any tax implications that I should be aware of?

 

[ShyCat]

If you do it wrong, you betcha.

Whatever you do, do not have the former employer distribute your 401(k) to you personally. If that happens, they will be required to withhold 20% for income taxes. If you do not add that 20% back in when you roll the money into another 401(k) or an IRA within 60 days, the 20% withheld will be an early distribution subject to 10% penalty if you are less than 59 1/2 years old or terminated employment with your former employment before the calendar year in which you turned 55. If you do not roll your distribution into an IRA or 401(k) within 60 days, the entire distribution will be subject to the 10% penalty. You will, of course, also have to pony up any additional taxes above the 20% withheld (e.g., an additional 8% if you're in the 28% tax bracket). The distributions would also be subject to any state income tax and penalties.

So, to save yourself a whole lot of grief, make sure you set it up so the distribution is made directly to your new 401(k) (or rollover IRA). A check may be given to you to give to your new employer's 401(k) administrator, but it should be payable to the administrator "FBO" (for the benefit of) you, not payable to you personally.

Read all paperwork very very carefully. If it's done right, 100% of your 401(k) will be rolled over directly to the new account and there are no tax or penalty consequences.