What Are the 401k Rollover Tax Implications?

Learning the 401k rollover tax implications can help you avoid any situations in which you have to pay money to the IRS that you otherwise would not have to pay. When rolling over a 401k to an IRA or another 401k, there are two ways that you could do it. You could have the money directly rollover from one company to another or you could get the money from the first company and take it to the second one.

If you allow the company to make a direct transfer to the other retirement account provider, you will not have to worry about any tax applications. There will not be any taxes on this transfer.

If you handle the transfer, then there could be some tax implications that you should know about. With this process, if you hold the money and do not deposit it into another retirement account within 60 days, the IRS will consider it to be an early distribution. This means that you will have to pay a 10 percent early distribution penalty. In addition to that, you will also have to count the money as regular income and you will be charged taxes at your marginal tax rate.

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