Common 401k Rollover Mistakes and How to Avoid Them

Common 401k Rollover Mistakes and How to Avoid Them

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If you belong to an employer-sponsored 401k plan, you may have to roll over your funds at some point in the future. This is because your eligibility will expire when you either quit or leave your job through termination. In that case, you will have to roll your money over into a traditional or self-directed IRA. Learning more about this process will help you conduct your rollover with greater confidence. It will also help you avoid making the common mistakes that many people do make when rolling over their funds.

Protect Your Wealth & Get Huge Tax Saving!

Common 401k Rollover Mistakes and How to Avoid Them

Why Should You Roll Over Your 401k?

There are a couple of different reasons for rolling funds over from a 401k account. Even if you're still actively using the 401k plan with your employer, rolling some of those funds over will give you more opportunities for diversifying your investments. As you grow more wealth, you can initiate additional rollovers into your IRA. When done correctly, this process will provide several financial advantages.

Avoid Early Withdrawal Penalties

If you do lose your job unexpectedly or switch employers, you'll have a limited time to manage the money in your 401k. If you miss the deadline, you'll receive a check for the funds in your account, and the disbursement will be reported to the IRS as a withdrawal. You will still have the 60-day window to deposit the check into a new retirement account, but that deadline will approach quickly. If you miss it, you'll be charged income taxes on the full amount, and you'll have to pay an additional sum in early withdrawal penalty fees.

You can avoid this situation if you already have a traditional or self-directed IRA set up. In that case, a wire transfer can be used to process your rollover within minutes. This can usually be done over the phone when you contact the 401k manager or your IRA custodian. If you have previously been rolling over your funds, you'll already be familiar with the process, and that can make an emergency rollover even easier to initiate.

Manage Your Investments With Greater Control

When you're new to investing, a 401k plan is a great way to get started and learn the ropes as you grow your retirement wealth. The downside to participating in a 401k plan is that your investment options are limited to the funds chosen by the plan administrator. This makes it difficult to diversify your investments in a way that will help you protect the wealth you grow over time. When you roll your funds over into a self-directed IRA, you'll have greater control over how your money is invested.

In a self-directed IRA, you can invest your money in a wider variety of stocks, mutual funds, and ETFs. Additionally, the IRS allows people to use self-directed IRAs to put their wealth into nontraditional investments. You can invest in real estate, cryptocurrency, or precious metals and those investments will benefit from the same tax protections that apply to paper investments.

Common 401k Rollover Mistakes and How to Avoid Them

What Are The Common Mistakes?

When it comes to rolling over your retirement funds, the IRS has a few different regulations in place. Violating these rules can subject you to fees and penalties that could cause you to lose the benefits that a tax-protected retirement account is intended to provide. Making yourself aware of a few common errors can help you avoid them.

Missing the 60-Day Deadline

The most common mistake is missing the 60-day limitation that the IRS places on indirect rollovers. An indirect rollover involves the 401k plan administrator issuing a check to the account holder, which the account holder must deposit into an IRA. If the check isn't deposited within 60 days, or if the rollover paperwork isn't received by the IRS within that time frame, the IRS will view the transaction as an early withdrawal. In that case, you will have to pay income taxes and early withdrawal penalty fees on the amount withdrawn.

Paying Double Taxes

Another reason indirect rollovers are discouraged is that you'll have to pay double taxes on the amount withdrawn. Upon withdrawing the amount, the 401k plan administrator is required to deduct 20% for income taxes. When you deposit the sum into your IRA, you must make up that 20% and deposit the full withdrawal amount into the IRA. If you don't cover the 20%, the IRS will view the rollover as incomplete and charge you income taxes on the full amount.

Waiting Too Long

You can retire as early as 62, but you aren't required to begin taking disbursements at that time. If you choose to work longer, you can continue investing in your retirement until you do retire. However, you must begin taking disbursements by the time you reach 70 1/2 years of age. At that time, you will be ineligible to perform a rollover. Your retirement savings will have to remain in the existing account.

Reversing a Rollover

The IRS also regulates how you roll your retirement savings. While you can roll your money over from a 401k to a traditional IRA, you cannot roll your money over in the opposite direction. Similarly, you can't roll money over from a self-directed IRA to a 401k. Your 401k plan administrator can tell you more about the rules regarding the types of accounts that can receive rollovers.

Common 401k Rollover Mistakes and How to Avoid Them

What Can You Do With a Gold IRA?

When you create a self-directed gold IRA, you can use your retirement wealth to invest in physical gold and other precious metals. This can benefit your retirement plans in a variety of ways.

Protect Your Savings

One of the main reasons people choose to invest in gold is that it serves to protect their existing wealth. The purpose behind diversifying your investments is to reduce the risks of losing everything in a single poor investment. However, a downturn in the market, such as that which results in a recession, can affect multiple paper investments. Even if you own a wide range of stocks in multiple industries, a market-wide drop can cause all of those investments to lose value.

Owning gold can protect your wealth since precious metals tend to perform independently of the market. As stock values drop, investors typically sell their shares and turn to gold instead. This drives up the demand for gold and that, in turn, increases gold's value. If you own gold during this type of situation, your wealth will increase.

Continue Growing Your Wealth Gradually

Another factor that increases the value of precious metals is inflation. There are periods of rapid inflation brought on by political or economic factors, but there is also the gradual inflation that happens from year to year. In either case, the value of physical assets increases. This includes gold and silver in the form of bars and coins. If you own gold and silver, their value will increase gradually over time for as long as you own those assets. This can help you grow your wealth at a modest rate without the higher risks associated with other types of investments.

Common 401k Rollover Mistakes and How to Avoid Them

Our Top Gold IRA Companies

While there are many gold IRA companies in the world today, you should take your time to look for companies that offer the highest quality in customer service. Here is a brief look at the top three companies. Each of them maintains A+ BBB ratings and large numbers of positive customer reviews on multiple websites.


The team at Augusta stands out for the comprehensive assistance they provide to new and existing customers. They will help you process your direct rollover so you can begin investing in gold right away. They partner with IRS-authorized U.S. depositories and self-directed IRA custodians to simplify the account setup process. They will consult with you to help you calculate your retirement goals and help you choose the best gold products to help you meet those objectives.

#2. Goldco

You'll find plenty of friendly and informative assistance when you work with Goldco. While they will also assist with your rollover, they are more renowned for their extensive library of educational resources. Their multimedia startup kit is free, and it will help you learn what you need to know about investing in precious metals with them.

Starting out as a small California-based business, American Hartford Gold has grown to service investors throughout the country. Their growth is due to a transparent and straightforward approach. They try to keep their fees small, and they provide fee transparency that their customers appreciate. As with the other companies mentioned here, they assist with direct rollovers, partner with IRA custodians and depositories, and offer a wide range of precious metals that meet the government's purity standards.

Final Thoughts

Due to the complexities involved in rolling over a 401k into another retirement account, it's always a good idea to take advantage of the help that's available. A good gold IRA company will have the assistance needed to complete your rollover successfully. In addition to helping you invest in gold sooner, this assistance will help avoid costly rollover errors.