The Ins and Outs of a 401(k) Rollover to Vestwell

Traditionally, rolling over a 401(k) has been a tedious process, but there are many benefits to doing so. We have aimed to simplify the process.

What is a Rollover? 

If you switch jobs or your current retirement plan is being terminated, you will need to decide what to do with your previous 401(k) plan assets. To continue enjoying the tax benefits of your plan, you can transfer or roll over your account balance to your new employer's 401(k), an Individual Retirement Account (IRA), or another qualified account.

Types of Rollovers

There are two types of rollovers, each with different tax implications:

  • With a direct rollover, your money is transferred directly from one retirement account to another. No money is withheld for taxes. 
  • In an indirect rollover, a check will be sent to you which you must deposit into another qualified retirement account within 60 calendar days. If you fail to deposit the check within the given time frame, it will be considered an early distribution, and you will be taxed accordingly.

How Can Vestwell Help? 

Follow the instructions below to complete a rollover into a Vestwell account:

Why Should I Consider Rolling My 401(k) to Vestwell? 

Besides the convenience of consolidating your retirement plans, there are several other benefits to consider when making a move: 

  • Better investment options: Your prior 401(k) plan may have offered a limited menu of investment options or required you to invest in employer stock. The Vestwell Platform offers various funds, model portfolios, and target-date funds. And don’t worry if you have no idea what that means; we’re here to help! 
  • Lower fees: In general, Vestwell’s fees are below industry benchmarks, and Vestwell does not receive any indirect revenue for services provided to your plan. Your prior plan may have had higher fees, and those are assessed against your account, which could reduce your overall savings. To compare, ask for a fee disclosure from your previous provider. You received a Vestwell fee disclosure with your welcome email.  
  • Avoid unnecessary charges: 
    • As a terminated employee, your former employer may charge additional fees to maintain your 401(k) plan.
    • If you have a small balance, you may be forced out of your old 401(k) and charged distribution fees. 
    • If you fail to notify your former employers of an address change, your former employer may transfer its search fees to find you, or, even worse, your account may be transferred to an IRA selected by the plan. 
    • Annual administration fees can be charged by each plan, and these fees can amount to hundreds of dollars per year.
  • Easier management: An average worker changes jobs 12 times in their career. Keeping your investments in one account provides a comprehensive view of your retirement portfolio, enabling you to monitor it regularly and make informed decisions.

Do I Have to Roll Over My Previous 401(k)? 

The short answer is no. If your prior plan allows, you can leave your account with your previous provider or take a cash distribution. However, the following is worth noting. 

  • Leaving it: If your vested 401(k) balance is $7,000 or less, your previous employer may require you to take your money out of the plan when you leave the company. Additionally, your previous employer can direct you to withdraw your funds once you reach the plan’s retirement age. 
  • Cashing out: Though tempting, cashing out your 401(k) plan comes with taxes and penalties, as the funds will be treated as a taxable distribution. As a result, it would be subject to a 10% penalty if you are under 59 ½. Additionally, the taxable portion will be added to any other taxable income for the year and can move you into a higher tax bracket. 

Ultimately, Vestwell is here to help you meet your retirement goals, but it is up to you to decide how to address prior funds. Should you move your previous retirement plan account balance onto the Vestwell platform, we look forward to partnering with you every step of the way. You can reach us anytime at help@vestwell.com.

If you need help contacting the company that currently services the account you wish to transfer to Vestwell, here is a link to a helpful article that may include their contact information.