How to Transfer Retirement Funds

• Step 1

  Decide what type of investment vehicle(s) you want to use for having your retirement nest egg grow. This is one of the most important decisions you will make, yet it usually receives surprisingly little attention when the transfer is made. Do you want to transfer it to your new employer's pension plan? If moving the money into a private retirement account, do you want to invest it with a local bank, split it into multiple investment accounts, or have it managed professionally and invested in stocks?

• Step 2

  Ask for specific information about fees. Your local bank might be happy to pay interest on money you invest in an individual retirement account, without charging a maintenance fee. Using a financial planner or brokerage firm to invest and manage the funds can be more expensive than it first appears, because you'd be paying an annual management fee or a per-transaction fee--or both. Run the numbers to compare the total fees to the likely return on your investments.

• Step 3

  Know what to call the transaction. If you are moving the money from one employer's pension plan to another, it is called a "rollover." Your new employer can tell you whether you are allowed to execute a rollover into your new pension plan. A privately owned traditional IRA can also be rolled over into certain employer accounts, such as section 403(b) accounts, Thrift Savings Accounts or TSA's, Section 457 plans or Federal Thrift Savings plans. Moving the money directly from your company pension plan into an IRA is called a "trustee-to-trustee transfer."

• Step 4

  Execute the transfer(s) in writing. For a rollover, you can either have the previous retirement plan trustee cut you a check or have the trustee make a direct transfer to a financial institution or brokerage firm. Unless there is a very good reason for you to have the check in hand, it is much simpler to have the funds transferred directly. Contact your current pension plan administrator and ask for the paperwork to authorize the transfer. Your new plan administrator or brokerage firm will provide you with information you'll need for filling out the transfer paperwork.

• Step 5

  Understand the exceptions to tax and penalties. Direct rollovers and trustee-to-trustee transfers have no tax consequences. But if a check is issued to you personally and not rolled over into a qualified pension plan within 60 days, in most cases the former trustee will be required to withhold federal taxes of up to 20 percent. A 10 percent penalty will also be assessed by IRS on amounts not rolled over within the 60 days. Medical, educational or other expenses might qualify you for relief from the penalty, depending on the type of retirement plan you have.

• Step 6

  Report the transfer or payout on the "pension" line on the front of the 1040 form. The taxable amount will be zero for direct rollovers and trustee-to-trustee transfers, and there will be no early-distribution penalty. The former retirement plan administrator will issue a 1099-R form in January to report a transfer, rollover or cash payout. An additional entry will be required to compute the penalty on Page 2 of your tax return if any of the funds were distributed to you rather than a trustee. If you qualify to take an exception to the 10 percent penalty, fill out Form 5329 to claim the exception. You may not use 1040-A or 1040-EZ forms to file your taxes if you need to file Form 5329. Attach a copy of your 1099-R form only if federal tax was withheld from the distribution.

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• Phone number or address of current pension plan administrator Transfer information provided by new plan administrator IRS Form 5329
• Phone number or address of current pension plan administrator
• Transfer information provided by new plan administrator
• IRS Form 5329

• USUnited States

References & Resources

• Publication 590 -- Retirement Funds