What are the rollover rules for 401(k) and 403(b) plans?


Quick Answer

401(k) and 403(b) plans differ mainly in the type of organization sponsoring them; otherwise, they are largely the same qualified retirement plans, and the same rollover rules apply. A rollover may either be executed directly between custodians or by an individual withdrawing and depositing the funds himself, notes Investopedia.

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Full Answer

A direct or trustee-to-trustee transfer involves the funds moving from one custodian to another without passing through the employee’s hands at any point; the alternative involves the employee withdrawing funds and depositing them into the new account within 60 days, explains CNN Money. If funds are withdrawn, 20 percent is withheld for tax purposes. This is reimbursed after the individual’s next filing of his income taxes. However, the individual must pay the missing 20 percent into the new account from another source of funding within 60 days of withdrawing the funds.

Any retirement plan distribution, unless it meets certain criteria and is smaller than $200, is considered an eligible rollover distribution, and 20 percent of it is withheld, Investopedia explains. Some of these criteria include classifying the distribution as a required minimum distribution or a hardship distribution; considering it part of a series of “substantially equal” payments paid out over a long time horizon; and treating a loan as a distribution.

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