Rolling Over a Retirement Account? Here’s One Costly Mistake to Avoid ⚠️

When you move money from a 401(k) or other employer plan into an IRA, how that money moves makes all the difference.

You generally have three options:
🔹 A check made out to you
🔹 A check made out to your IRA provider
🔹 A direct online transfer to your new IRA

That first option—a check made payable to you—is where people often get tripped up, which is why it’s usually the one to avoid.

Here’s why ⬇️

Even if the money is headed straight into your IRA, the plan provider is required to withhold 20% for taxes. So if you’re rolling over $100,000, you’ll only receive $80,000.

But to avoid taxes and penalties, you still need to deposit the full $100,000 into your new IRA within 60 days. That means coming up with the missing $20,000 out of pocket.

❗ If you don’t, the $20,000 becomes taxable income.
⏳ And if you miss the 60-day deadline, the entire distribution could become taxable.
💸 If you’re under 59½, you could also owe a 10% early withdrawal penalty on any portion not deposited in time.

✅ Best move: ask for a direct transfer.
That way, the money moves directly from one account to the other. No detours. No withholdings. No tax surprises.

📌 The same 60-day rule applies if you’re moving money between IRAs—like transferring funds from one provider to another—so timing still matters.

A Final Note 📝

This often seems like it should be simple—and sometimes it is. But not always.

I’ve worked with clients where the paperwork from the original account was confusing, and checking one box the wrong way made all the difference. When the forms or process aren’t clear, it’s always worth double-checking before the money moves.