Now that my income isn’t too high that requires a backdoor Roth (having pre-tax money in a Traditional IRA interferes with it), I finally rolled over my 401k from the former employer to an IRA. The 401k money was 100% Traditional. It went into a Traditional IRA. Charles Schwab as the 401k administrator and Fidelity as the IRA custodian did a great job. I was able to complete the rollover in only two days.
This is not a sponsored post. Neither Schwab or Fidelity paid me to write it. I’m sharing my personal experience to show how easy it is to do a rollover. If you also wanted to rollover and consolidate but you dread the hassle, you will see it’s not difficult or time-consuming at all. If someone tells you it will take a few weeks to complete the rollover, that’s not normal. It should only take a few days, not a few weeks.
When you transfer from one IRA to another IRA, you start from the receiving end because the financial industry has standardized the transfer process. When you do a rollover from a 401k, you start from the sending end because each plan has its own process and requirements. Some 401k administrators take the request online. Some administrators require a signed paper form. Some even require a signature from someone at your former employer.
After the 401k administrator receives the rollover request, they will sell your investments. Then they typically cut a check. One question is whether it’s OK for them to send the check to you. Some people say the check should go directly from the 401k administrator to the IRA custodian; otherwise it won’t count as a direct rollover. That’s not accurate. It’s OK for you to receive a check. What matters is whom the check is made out to.
When the check is made out to the IRA trustee, even if it’s physically sent to your home address, it still counts as a direct rollover because you are not able to cash the check. Your role in handling the check isn’t that much different than the UPS driver. You’re just forwarding the check to the destination. The 401k administrator sends the check to you as a security measure, when they know they are sending it to a known address.
You only don’t want the check made out to you personally. When the check is made out to you personally, the administrator will have to withhold 20% for taxes. Then if you don’t replace the 20% in the rollover, that 20% counts as a withdrawal, which is then subject to tax and penalty.
You need to find out from the receiving IRA custodian how they want the check made out to. I was rolling over to an IRA at Fidelity. Fidelity says on their website:
The check should be be made payable to Fidelity Management Trust Company (or FMTC), FBO [your name]. Be sure to include your IRA account number on the check.
Charles Schwab manages my former employer’s 401k plan. They made it really easy to process a rollover. It was all online. The online form asked which financial institution I was rolling over to. “Fidelity Management Trust Co.” was one of the choices in a dropdown. The online form also had a field for the IRA account number.
I completed the online request on a Friday evening. Schwab sold my funds at the market close on Monday, cut a check on Tuesday, and sent it to me by UPS overnight delivery at no charge. Because I have UPS My Choice, UPS emailed me when the package was coming. I received the check on Wednesday, drove to the local Fidelity branch, and deposited the check into my IRA. The money showed up in my account right away and I was able to put in buy orders. By the market close on Wednesday the money was already invested. It was out of the market for only two days.
The rollover check also came with the 1099-R form for my tax filing next year. Short of rolling over to an in-house IRA (Schwab to Schwab), this was as fast and easy as it gets.
Say No To Management Fees
If you are paying an advisor a percentage of your assets, you are paying 5-10x too much. Learn how to find an independent advisor, pay for advice, and only the advice.
It would be interesting to know though why you decided to do this rollover. I thought Schwab was about as good as Fidelity in terms of customer support and products and services.
Harry Sit says
My other accounts are at Fidelity. When they are equally good I don’t need two places.
I rollover my Schwab 401(k) to a Schwab IRA. I received a signup bonus and the assets are moved in-kind. So I am not out of the market.
Thanks for this description of your rollover.
Eric B says
Any thoughts on the asset protection implications of this move? This seems important, but I rarely see it mentioned on personal finance blogs. (Note: I hope this doesn’t double-post–I got an error message the first time I submitted. If it is a double-post, sorry!)
Thanks makes sense. I have 401(k) accounts from a former employer at Fidelity, but most of my investment funds are held at Vanguard in all sorts of accounts including non-retirement, Traditional IRA, Roth IRA, individual 401(k)/Roth 401(k), and even a SEP IRA. I find their customer support and systems to be slower and more cumbersome than Fidelity’s. Since I don’t make a lot of transactions and generally don’t want to use non-Vanguard products, I lean toward tolerating the inconvenience and hope they get with the program eventually.
Aren’t you concerned that your blog, adviser recommendation business, investment income, speaking gigs, etc may push you back above the line?
Then you won’t be able to do back door IRAs for you and your wife.
Will you then roll all of your IRA funds back into your Solo 401k?
Or do you not value the back door IRA as much at this stage of your life?
Harry Sit says
I’m very far from having to worry about that. If I ever get there, I will deal with it at that time. Worst case I won’t be able to contribute to an IRA. It will be a nice problem to have. I would welcome that scenario.
Bob T says
When I retired, I was finally able to consolidate my profit sharing plan, 401K, and three IRAs into a single traditional and single Roth IRA at Fidelity. Much easier to manage two portfolios than five and one RMD than three RMDs. Rollovers were pretty straight-forward, although I had some after-tax basis in my 401K that I converted to a Roth IRA which was complicated by the earnings on the after-tax investment being regarded as pre-tax (and therefore a taxable Roth conversion). Anyway, my experience with consolidation at Fidelity was very positive as well.
Thrifty Femme says
What did depositing the check at the branch entail? I want to have my husband drop off the check. Do you think that is allowed, or do I have to be present to deposit the check?
Harry Sit says
I don’t remember whether they asked for ID. You can call and ask the branch whether it’s OK to send someone else. It’s probably helpful to bring a completed deposit slip, with the correct box for the deposit type checked, to make it super clear which account it’s going into and what it’s for.
Bob T says
In my case, it was a custodian-to-custodian transfer so I never handled a paper check. My guess is that you have to be there in person with photo ID to set up the accounts due to the Patriot Act, but that subsequent deposits could be made by spouse – but just my guess.
Hi, Harry. I happened on your posts today and am I grateful. Lots of useful information. Your tips on IRA rollovers and Obamacare/ACA are especially helpful for my situation. I appreciate you. Thank you so much.
Thrifty Femme says
I ended up going myself, and they did ask for ID. Your deposit slip is a good idea that would probably work for someone else dropping off a deposit.
Regarding Schwab sending the check overnight, mine was sent overnight but my husband’s was sent regular first class mail. There must be some account balance limit for overnight mail service. Mine account was above 250k and his was below 200k, so not all checks get overnight service :o|
Thrifty Femme says
I forgot to say that Schwab sent the 1099-R with the check, which is good and bad I guess. I scanned it, so I can find for taxes next year.
I also did a rollover from an old 401k to a Fidelity IRA a few weeks ago. What I really was impressed with was how I was able to deposit the rollover check once it was mailed to me. In Fidelity’s app they have a mobile check deposit feature. I took a picture of the check and uploaded after business hours on a Friday. Approx 48 hours later on Sunday night the funds were in available in the IRA as cash. I purchased my desired mutual funds the next day. I agree that folks shouldn’t be intimidated by the rollover process. I found it pretty easy!
Can you do a 401K direct rollover to IRA WITHOUT you handling the check? ie. transfer assets from your 401K plan administrator to your IRA acct directly? Will ACATS work for this situation?
Yes you can have it sent directly to the IRA company. Make sure the check is made payable the way the receiving institution wants. (usually “receiving firm FBO your name).
Generally ACATS is only used for brokerage to brokerage or IRA to IRA. 401k to IRA is almost always check. Wires can be done too (for a fee of course lol).
Harry Sit says
Some plans only send checks to the participant for security reasons.