You may have a few retirement savings accounts from prior employers, personal IRA accounts, or both. By “rolling over” your old retirement accounts into your new Guideline 401(k), your retirement savings benefit from Guideline’s professional portfolio management and low fees.
You can rollover your assets through either a direct or an indirect rollover. Once you understand the differences between the two methods, you’ll be ready to move forward with consolidating your assets into your Guideline 401(k).
Always Opt for a Direct Rollover
With a direct rollover, your previous provider disburses your assets by making them payable directly to your new custodian for your benefit. Transferring your assets directly to your new custodian ensures that you don’t run into any dicey situations involving tax withholding or early withdrawal penalties. A direct rollover is the easiest — and the method Guideline advocates!
Beware common tax pitfalls of indirect rollovers
An alternative rollover method is an indirect rollover. With an indirect rollover, your previous custodian disburses your assets by making them payable directly to you, and withholds a mandatory 20% income tax (and potentially state tax too). You are responsible for depositing the entire amount into your new retirement account within 60 days. This includes contributing not just the full amount of the check you received, but also an amount equal to the taxes withheld from your distribution. (When you file your tax return, the 20% withheld can be applied to your income tax or returned as a tax refund to you.) If the full amount is not deposited within 60 days, this is considered a partial rollover and any amount not rolled over will be taxable and may be subject to early withdrawal penalties if you are not otherwise eligible for a distribution.
Why might someone want to go through this cumbersome process? Some people use it as a way to get a 60-day “loan” on their retirement assets. Guideline does not recommend this strategy given the added complexity and frequent oversights by participants who fail to re-deposit their entire rollover amount.
Conveniently Rollover Your Assets to Guideline 401(k)
Guideline happily accepts rollovers from the following types of accounts:
- Traditional (Pre-Tax) 401(k)
- Roth 401(k)
- Traditional IRA
- Simple IRA (subject to a 2-year waiting period)
- 403(b) (Traditional and Roth)
- Governmental 457(b) (Traditional and Roth)
Unfortunately, Roth IRAs are not permitted to be rolled into a 401(k).
Check out this IRS Rollover Chart to learn more.
Please see our article How Do I Rollover my Retirement Account to Guideline?