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Consolidating 401ks

While this could be an excellent cover in the event that you don’t complete the rollover within the required 60 days, it comes with a set of complications all its own.

There are two ways to merge one traditional IRA into another:60 day rollover rule.

This is the more complicated of the two methods, and generally not recommended.

Before deciding on merging 401(k) plans into your current plan, consider the following: Where merging 401(k) plans is concerned, it’s important to understand that all 401(k) plans are not equal.

Some are better than others, and you can hurt your retirement efforts significantly by making convenience the primary criteria in choosing which 401(k) plan you’re going to merge the others into.

The money never passes through your hands, which is why taxes and penalties are avoided.

If you rollover that amount into a new IRA, you have two options: either come up with the additional $2,000 out of your own funds in order to complete the full rollover, or the $2,000 withholding will be subject to tax and penalties, since it never made it into the new plan.

Generally speaking, it’s easy to merge retirement plans, and to do so without incurring penalties.Moral of the story: Never use a 60 day rollover method unless there is absolutely no other option. This is the rollover method you should use anytime you can, as it is the simplest way to merge IRA accounts, and creates virtually zero chance of incurring income taxes or early withdrawal penalties.Under direct transfer, you simply complete the required paperwork that will enable your previous IRA trustee to make a direct transfer of IRA account proceeds into the new IRA trustee account.You should be able to merge old 401(k) plans into a new employer plan as long as it is permitted by the new employer plan.And since the dollar amounts involved in 401(k) plans are often considerably larger than what they are for IRAs, it’s doubly important that you use the direct transfer method to avoid tax problems.In many cases, the trustee of the old account will withhold 20% of the distribution from the plan to cover income taxes.