How to Roll Over a Pension Plan

You have several options regarding your 401(k) when you leave a company. Often, the best is to roll it into an IRA.
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You've left your old job for a better one, or perhaps you were laid off. One question to consider is what to do with the money in your old pension plan. Rolling it into a similar plan offered by your new employer -- or into an individual retirement arrangement -- may help you keep better control of your finances, according to SmartMoney, a publication of The Wall Street Journal.


The first step in rolling over a pension fund is to understand your options, which -- according to SmartMoney -- are staying put, rolling over or cashing out. If your old plan offers great investment options at low prices and won't charge you fees to stay put, this may be your best option. If you have access to a pension plan through your new employer and it has good features, that might represent your best choice. Other options include a traditional IRA and a Roth IRA. Rolling funds into an IRA enables you to make your own investment decisions.

The IRS website provides a chart that lists the rollover possibilities for each type of retirement plan.

Cashing out is rarely a good idea. You'll pay taxes on the money, and if you are younger than 59 1/2 you will also pay a 10 percent penalty.

First Steps

A direct rollover allows you to avoid taxation and penalties. With a direct rollover, your funds are transferred directly to your new account either by check or direct deposit, according to InvestorPlace. Obtain from the administrator of the new account such information as the account number, the bank routing number and how to have the check written. Then call the administrator of the old account and provide the information.


If the pension plan administrator for your former employer issues a check to facilitate the rollover, it typically will be made out to the gaining custodian, will note that it is for your benefit and will include your account number. Sometimes, however, the check will be sent to you. If it is, the IRS requires that you deposit it into your new retirement plan within 60 days -- including weekends -- from the date of distribution to avoid being required to pay income tax and an early withdrawal penalty, according to InvestorPlace.

Be Wary

Once you've completed the rollover, you'll be asked to make investment choices. Take your time to ensure that your entire portfolio -- not just this account -- contains a diverse range of investments, including index funds, mutual funds and fixed-income options such as bonds and CDs, urges SmartMoney.

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