Most retirement consultants agree that the 401k rollovers take more time and are more complicated when compared to making an IRA rollover or withdrawal. The rules are different because the assets are held differently in a 401k plan than in an IRA.

The investments you have in a 401k are held in a trust fund for your benefit while the money and assets in the IRA are owned by you. The 401k rules were purposely made difficult for the employee/investor or creditors to access the money so your savings would stay in the plan for your retirement years.

Your 401k retirement plan is sponsored by your employer and the assets are owned by the plan and your contributions are held in a trust, administered by a trustee, who manages the assets in your behalf. These funds are separate from the employer’s general assets and can’t be used in business or creditor collection. This additional level of administrative involvement is what complicates and prolongs the rollover process.

A 401k plan rollover normally happens when a” benefit event” occurs such as you reach 59½, retire or leave/ change your employer. You will have to file a 401k-election form when a benefit event occurs giving your employer directions on the amount of money, where you want it sent and how to send the rollover funds. Distributions choices include lump-sum, regular periodic amounts or another 401k plan or an IRA, depending on your individual situation. The employer processes the 401k–election form by sending a formal notification letter to the plan trustee that a distribution can be made and finally forwarded to the plan administers. If you are rolling over the entire amount in your account request that your account is closed so the employer won’t charge you for on going administration services. This total process for a 401k withdrawal can take two or three weeks regardless of how or where the funds are sent.

If you are going to rollover your existing 401k to another retirement plan there are basically two methods; a direct rollover and a self directed rollover.  In a direct rollover the money is transferred from one retirement plan to another qualified plan and eliminates withholding rule concerns or tax penalties. If you want access to part of the money in your account and are unsure of what to do with the remainder a self directed rollover might be the answer. Rollover funds paid directly to you require a 20% withholding tax by your employer but, you will pay taxes on the full amount. An important tip: remember that you have only 60 days too reinvest the money into a tax deferred account or the IRS will assume you have  permanently withdrawn the money and you will owe income taxes and a penalty if under 591/2 years old. Make sure you have opened another qualified retirement account before you request a tax free rollover.

These 401k rollover rules are a simplified short  version of the very complicated IRS  restrictions and guidelines, so talk to your plan administrators before choosing the type and manner of distributions. You are saving for a comfortable life after work not a bad dream.