Hello there! Are you ready to take control of your retirement savings? Rolling over your 401(k) to a Vanguard IRA is a fantastic way to gain more control over your investments, potentially lower your fees, and simplify your financial life. Let's dive into the step-by-step process of how to roll over your 401(k) to Vanguard.
Step 1: Get to Know Your Old 401(k) and Decide on Your Destination
Before you do anything, you need to gather some crucial information about your existing 401(k) and decide where you want the money to go.
Gather Information:
Who is the provider? This is the financial institution holding your 401(k) (e.g., Fidelity, TIAA-CREF, etc.). You'll need their contact information.
What type of 401(k) do you have? Is it a Traditional 401(k) (funded with pre-tax dollars) or a Roth 401(k) (funded with after-tax dollars)? This is a critical detail that will determine the type of IRA you open.
What's your account number? Have a recent statement handy.
Are you eligible for a rollover? Generally, you can roll over your 401(k) when you leave a job, but some plans may have restrictions. It's best to check with your plan administrator.
Choose Your Vanguard IRA: You'll need to open an Individual Retirement Account (IRA) at Vanguard to receive your funds. The type of IRA you open depends on your 401(k) type.
If you have a Traditional 401(k): You'll want to open a Vanguard Rollover IRA or a Traditional IRA. This will allow your money to continue growing tax-deferred. You won't pay taxes on the rollover amount at this time.
If you have a Roth 401(k): You need to open a Vanguard Roth IRA. This is a tax-free transfer, as you've already paid taxes on the contributions.
If your 401(k) has both Traditional and Roth assets: You'll need to open two separate IRAs at Vanguard—one Traditional and one Roth—to keep the tax-deferred and tax-free funds distinct.
Step 2: Open Your Vanguard IRA
Now that you know what kind of account you need, let's get it set up. Vanguard makes this process very straightforward.
Online Account Opening: The easiest way to open your Vanguard IRA is online. Visit the Vanguard website and select "Open an account."
Provide Personal Information: You'll need to provide your personal details, including your Social Security number, and information about your employer.
Fund the Account: During the application, you'll be asked how you'll fund the account. Select the option for a rollover from an employer plan. You don't need to deposit any money from your bank account to open it for a rollover.
Wait for Confirmation: Once you've submitted your application, Vanguard will review it. You should receive a confirmation email with your new account number.
Step 3: Initiate the Rollover with Your 401(k) Provider
This is the most crucial step. You need to contact your old 401(k) provider and tell them you want to initiate a rollover.
Contact Your Provider: Call the customer service number on your 401(k) statement or visit their website to find the rollover instructions. Be prepared to be on hold for a bit.
Request a "Direct Rollover": This is the best and safest method. With a direct rollover, the money goes directly from your old 401(k) provider to Vanguard, without you ever touching the funds. This avoids any tax withholding or penalties.
Pro-Tip: When you're on the phone, explicitly state that you want a direct rollover to a Rollover IRA at Vanguard.
Provide Vanguard's Information: Your old provider will ask for information about your new Vanguard IRA, including:
Vanguard's name and address.
Your new Vanguard IRA account number.
Check Payable to Vanguard FBO You: The check should be made payable to "Vanguard FBO [Your Name]". "FBO" stands for "For the Benefit Of," which means the check is for your benefit but must be deposited into your Vanguard IRA.
Choose the Check Delivery Method: You have two main options:
Mail to Vanguard: The old provider can mail the check directly to Vanguard. This is often the most secure option.
Mail to You: They can mail the check to your address. If you choose this, you are responsible for depositing it into your Vanguard account.
Step 4: Deposit the Rollover Check (If Applicable)
If the check was mailed to you, you have a limited time to deposit it.
Deposit the Check Promptly: You have a 60-day window from the day you receive the check to deposit it into your new Vanguard IRA. Failing to do so can result in the entire amount being treated as a taxable distribution, and if you are under 59½, you could also face a 10% early withdrawal penalty.
Use Mobile Deposit: If you have the Vanguard mobile app, this is the easiest and fastest way to deposit the check.
Mail the Check: If you prefer, you can mail the check to Vanguard using the address provided on their website.
No Endorsement Needed (Generally): If the check is made payable to "Vanguard FBO [Your Name]," do not endorse it. If it is made out to you, you will need to endorse it.
Step 5: Invest Your Funds
Congratulations! Your money is now in your Vanguard IRA. The final step is to invest it.
Initial Holding: When the money arrives, it will likely be in a settlement fund, which is essentially a money market account. It's a safe place to hold your cash while you decide on your investments.
Choose Your Investments: Vanguard is known for its low-cost index funds and ETFs. You have a wide range of options.
Target-Date Funds: For a simple, hands-off approach, a Target-Date Fund is a great option. It automatically adjusts its investment mix based on your target retirement year.
Index Funds/ETFs: You can build your own portfolio with low-cost index funds that track the overall market, such as the Vanguard Total Stock Market Index Fund (VTSAX) or the Vanguard S&P 500 ETF (VOO).
Individual Stocks/Bonds: For more experienced investors, you can also buy individual stocks and bonds.
Place Your Trade: Once you've chosen your investments, log in to your Vanguard account and place your trades to move the money from the settlement fund into your chosen investments.
10 How-To FAQs About Rollovers
How to find my old 401(k) provider's contact information?
You can usually find their contact information on a recent account statement, on your old company's HR benefits website, or by calling your former employer's HR department.
How to know if I have a Traditional or Roth 401(k)?
Check your plan statements. It will typically be labeled as "Pre-tax contributions" for a Traditional 401(k) or "Roth contributions" for a Roth 401(k). If you're unsure, ask your plan administrator.
How to avoid paying taxes on a 401(k) rollover?
The best way is to perform a direct rollover. If you do an indirect rollover where you receive a check, you must deposit the full amount within 60 days to avoid a taxable event.
How to handle a rollover check made out to me?
If the check is made out to you, you have 60 days to deposit it into your Vanguard IRA. You must deposit the full amount of the distribution, even if your old plan withheld 20% for taxes. You will be able to claim that 20% as a tax credit when you file your taxes.
How to find Vanguard's mailing address for rollover checks?
You can find Vanguard's mailing address on their website or by calling their customer service. Make sure you use the correct address for mail-in checks.
How to invest my rollover funds once they are at Vanguard?
Once the funds are in your Vanguard settlement fund, you can log into your account and place trades to purchase Vanguard mutual funds, ETFs, or other securities.
How to roll over an old 401(k) from a previous employer?
The steps outlined above are specifically for a 401(k) from a previous employer. You cannot roll over a 401(k) from your current employer unless you've reached age 59½ or the plan allows for an in-service rollover.
How to track the progress of my rollover?
You can track the progress by contacting both your old 401(k) provider and Vanguard. It typically takes 2-4 weeks to complete the entire process.
How to know if a rollover is right for me?
A rollover gives you more control and a wider range of investment options, but you'll lose some creditor protection that is provided to 401(k) accounts under federal law. If you're comfortable managing your own investments and want lower fees, a rollover is often a great choice.
How to roll over a company stock from my 401(k)?
This can be a complex situation with tax implications. It's highly recommended that you consult a tax advisor before rolling over company stock to understand the potential tax consequences.