By Stephan Scribner
If you’re asking this question, you probably have a 401(k) or other retirement plan through a former employer. The short answer is yes—most retirement plans allow you to roll your plan funds over into an IRA after you’ve left your employer’s service. However, there is more than one way to do a rollover, and how you do it can be critical.
In most cases, your best strategy is to do a direct rollover. This is a direct transfer of funds from your employer-sponsored plan to your IRA. The administrator of your employer-sponsored plan may send the check right to the trustee of the IRA you have selected. That way, the money never passes through your hands.
Alternatively, the plan administrator may give the check to you to deliver to the IRA trustee. This also qualifies as a direct rollover as long as the check isn’t made payable to you. Instead, it should be made payable to the IRA trustee for your benefit. A direct rollover will avoid tax consequences and penalties.
You can also do an indirect rollover, but it’s rarely a good idea. Here, the check is made payable to you. When you receive the check, you cash it and deposit the funds in the new IRA within 60 days.