401k Rollover: This May Surprise You

Whether you have a Simple IRA or a 401k plan at the job you currently have, you may come to a point when you leave the company and have to consider rolling over the plan. It is important that you understand that a 401k rollover is a bit different from rolling over a Simple IRA. No matter what retirement plan you have, you need to understand the guidelines of rolling it over should you change jobs.

While doing a 401k rollover may be a bit more complicated, there are a lot more options when rolling over a 401k account than there are when rolling over a Simple IRA. If you are leaving a job where you had a Simple IRA you can only roll that over into another IRA unless you have been in that program for two years already. If you have been in that employers Simple IRA program, then you can roll it over into other types of retirement accounts, such as a 401k Roth.

On the other hand, you can do a rollover into almost any retirement account. There are exceptions to this rule, however. A 401k plan cannot be rolled over directly into a Roth IRA because of 401k rules. You must first take your 401k plan and roll it over into a traditional IRA, and then the traditional IRA can then be rolled over into a Roth IRA. This can be a bit difficult and confusing, since it takes two steps to make the final rollover.

Note the laws about both a Simple IRA rollover and a 401k rollover are changing. In the year 2008 it will be much simpler to roll over both a Simple IRA and a 401k plan. The laws will change in 2008. You could then roll over any retirement plan directly into a Roth IRA instead of having to wait for two years or having to roll it into a Traditional IRA first. These new laws will make it much easier for those who are trying to roll over their retirement plans when they are changing jobs.

If you are wanting to rollover a Simple IRA into a 401k plan, it is much different from a 401k rollover into a Simple IRA. There are specific qualifications that you must fulfill to be able to roll your simple IRA into a 401k plan, whether you are doing it yourself, or your employer is trying to do it for you. First, you need to have had the Simple IRA for two years with the company to roll it over at all. If you have not had it for 2 years, then you will end with a 25% penalty and you will be taxed on the money. Also, even if you are rolling it over after two years into another plan that is not a Simple IRA, you will still have to pay taxes on it. And you may still get the 10% penalty for removing the money.

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