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.