Your Retirement - Your Business
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Starting your Own Business
If you have been employed by a company for a long time, you may be wondering now that you're self employed - and own your own business - what to do with your 401(k) or your 403(b) from your employer.
You've been asking yourself "Can I roll over this 401(k) into another plan"? You can absolutely roll over a 401(k) to a plan, you just have to be careful what type of a plan it is!!
When you have a 401(k) it has 'tax preferential' status and if you 'blend' funds from other non-preferred plans (such as a regular Individual Retirement Account (IRA)) then you can lose that status.
It is critical when you fill out the account application for your new rollover account that you SPECIFY that this is a 401(k) and you wish to "roll it over" to a QUALIFIED account.
Many mutual fund companies and other financial institutions will designate this account as a "ROL" account - designating it as "qualified funds".
Which Retirement funds are Qualified?
Accounts that are termed 'qualified' are from specific types of pension plans. They include (but are not limited to) 401(k) accounts and 403(b) accounts or 457 Accounts. IRA Accounts are NOT considered to be a qualified account, nor are "PEN" (Pension) accounts.
- 401(k) accounts are defined as:employer sponsored defined contribution plan
- 403(b) accounts are defined as: tax advantaged plans for public education or non profit employees
- 457 accounts are defined as: tax advantaged plan generally limited to government or municipal employees
Things to Avoid
It is critical when you open this account that you DO NOT add any money to it that is not designated as "qualified". This includes SEP (Simplified Employee Pension) Individual Retirement Account (IRA), RIRA (Roth Individual Retirement Account) and some other 'non qualified' accounts.
As a self employed person you have different options than 401(k) accounts - do not add these funds to your rollover - if you decide to go back to an employer you will have the ability to add these ROL funds to your current qualified retirement plan.
Helpful Retirement Links
- A Guide to Understanding IRAs and 401(k) Plans
When many companies stopped offering good pension plans, more employees turned to IRA accounts and 401(k) plans to help them prepare for retirement. While many employers offer 401(k) plans that employees can contribute to, many employees do not have - Accendo Traders - Home
Accendo Traders: Stock Market Traders. - Putnam Investments
Putnam Investments manages mutual funds and other financial products for investors around the world. Putnam has over 65 years experience and manages mutual funds, IRAs, 401(k)s, 529 college savings plans, annuities, institutional portfolios and separ - Individual Retirement Account (IRA)
Individual Retirement Account (IRA) - Definition of Individual Retirement Account (IRA) on Investopedia - An investing tool used by individuals to earn and earmark funds for retirement savings. There are several types of IRAs: Traditional IRAs,
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Hi Ralph - the point that this hub was making was IF you planned to roll your plan over to a new employer. I'm not saying this is the investment choice you should make but IF you choose to roll the 401K into another 401K (not add 401k's to 401k moneys in an IRA) THEN you could not roll those funds over.
So, here's a for instance (perhaps I should have done this in the hub)
A) You work for XYZ Corporation for 15 years and you leave
B) You roll your XYZ over to your IRA account AND you begin making MONTHLY, or QUARTERLY deposits to it (now your 401K and your IRA monies are 'comingled')
C) You got work for NOP Corporation and after 3 months you are qualified for their 401k and you decide you like the investment choices
D) You put into your IRA account holder the request to roll your funds FROM your 401k to your new 401k
E) REQUEST DENIED: Reason - because you have 'comingled' 401k funds (those contributed by you and an employer) PRE-TAXED dollars and your IRA funds (AFTER TAX DOLLARS) there is now no distinguishing the two funds.
Does that make more sense?
So for instance when I was at the Mutual Fund Company - if you have a 401k and you rolled it over we would set up a ROL Account and if you had an IRA we would set up an IRA account (both perhaps under the same 'profile' but different account 'designations'. They might go into the same FUND but not the same ACCOUNT. You would still receive only one statement.
BTW: you misinterpreted something: I never suggested having different 401k's
In your case you were retiring and you were not MIXING IRA money - you can put 12 401ks into the same account if you want - you just cannot deposit AFTER tax dollars to it if you want to move it to another employer.
Doreen
I still don't understand what you are saying. When I took an early retirement in 1993, I rolled my employer sponsored 401k plan into a regular Vanguard IRA. Then I worked for another employer for 3 1/2 years, and when I left that employer, I rolled my 401k over into my regular old Vanguard IRA. A few months later I returned to work full time and worked 5 years. And when that job ended I rolled my 401k into my Vanguard IRA. That meant that all my retirement funds were in one Vanguard IRA. Last year I had to begin mandatory withdrawals and, as you indicated, I am paying income tax on the 4% or thereabouts I'm required to withdraw the same as I would have had to pay if I had left the money in three different 401k plans as far as I know. I guess what I don't understand is what the tax or other implications are from 'comingling' IRA and 401k funds. I don't understand the reason for your caution about not rolling 401k funds into an IRA. That is, what is the downside of doing that. I have read several financial manager recommendations saying that it usually is a good idea when you leave one employer to roll your 401k into an IRA with somebody like Vanguard that offers no load, low cost, index mutual funds (rather than leaving money in 401k plans at one or more previous employers which may not offer investment options that meet your needs or may require you to maintain investment funds in the common stock of the sponsoring employer. Nearly everybody says investing through a 401k in the stock of your employer is a poor idea. Another advantage of rolling all the funds into a single mutual fund provider is simplicity and a reduction of the number of statements you have to deal with at income tax time.
You could be correct however having worked in a retirement division for a mutual fund company I can assure you that the information that I have provided here is 100% accurate. IRA Rollovers are one matter as IRA's are not considered qualified funds (see IRS regulations on IRA/401). 401 accounts are qualified (i.e. they are contributed from PRE TAX dollars and not AFTER TAX dollars) and must be treated as such according to IRS regulations. Any 'comingling' of IRA and 401 funds while it will not result in taxes at the time will affect your ability to roll into future 401 funds with other employers.
I have rolled three 401k plans over into a regular Vanguard IRA without incurring any taxable events or experiencing any problems. I'm not familiar with the term "qualified account" and I'm not sure why an IRA would not be considered a qualified account. Here's a link to Vanguard's excellent website information on IRA rollovers---
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Ralph Deeds Level 6 Commenter 4 years ago
Yes. That makes sense. Thanks. Sounds like I'm okay.