Understanding TIAA 401(k) Rollovers
A rollover is nothing more than a funds transfer from one retirement account to another. Most commonly, rollovers are done when people change jobs, retire, or want to consolidate their retirement savings.
Critically, when you perform a rollover of your employer-sponsored retirement plan, you should be moving money between accounts with the same tax treatment. For instance, tax-deferred (or “pre-tax”) 401(k)s should roll into other pre-tax accounts, like traditional IRAs, and tax-exempt accounts, like designated Roth 401(k)s, should roll into after-tax Roth IRAs. Consistency is important here.
When it comes to moving your New York-based TIAA 401(k), you have two realistic choices:
- Direct Rollover. This is generally what we recommend most people do. A direct rollover involves requesting a funds transfer from TIAA to a provider (and account) of your choice. You never personally touch the money, as it flows seamlessly from one financial institution to another. Direct rollovers are the fastest and “least-risk” way to successfully roll over your retirement account.
- Indirect Rollover. With an indirect rollover, TIAA will distribute your 401(k) balance straight to you, less tax withholding of 20%*. The onus is then on you to deposit the entire original 401(k) balance into a tax-advantaged retirement vehicle of your choice within 60 days. If you don’t make the deadline, you’ll be liable for ordinary income tax and an early withdrawal penalty of 10%. Ouch!
* As an example, a $100,000 401(k) balance would only net $80,000 if you choose an indirect rollover. But you still might elect this option if you can come up with the funds by other means.
Understanding the difference between the two rollover types is key before you attempt to move money around. As noted, mistakes during the rollover process can cause issues with the IRS — not to mention the expense involved.
Let Capitalize handle your 401(k) rollover for you, for free! We’ve made it our mission to make the 401(k)-to-IRA rollover process easy for everyone. Learn more