Ready to take control of your retirement savings? Rolling over your Empower 401(k) can be a smart move, offering greater flexibility, potentially lower fees, and a wider array of investment choices. This comprehensive guide will walk you through every step of the process, ensuring a smooth transition for your hard-earned money. Let's dive in!
Understanding Your Options: Where Can Your Empower 401(k) Go?
Before we get into the "how-to," it's crucial to understand your destination options for your Empower 401(k) funds. Each option has its own advantages and disadvantages:
Leaving the money in your former Empower 401(k) plan: This is the "do nothing" option. While it's the simplest, you won't be able to contribute to it anymore, and you might have limited investment choices or higher fees compared to other options. Some plans may even force out balances under a certain amount (e.g., $5,000).
Rolling over to a new employer's 401(k) plan: If your new employer offers a 401(k) and accepts rollovers, this can be a good way to consolidate your retirement savings. It keeps your money in a tax-advantaged employer-sponsored plan. However, you'll still be limited to the investment options available within that new plan.
Rolling over to an Individual Retirement Account (IRA): This is often the most popular choice. An IRA offers significantly more control over your investments, typically a wider range of investment options (stocks, bonds, ETFs, mutual funds), and potentially lower fees. You can open a Traditional IRA or a Roth IRA, depending on your tax situation.
Cashing out your 401(k): This is generally not recommended. If you cash out, you'll owe income tax on the entire distribution, and if you're under 59½, you'll likely incur an additional 10% early withdrawal penalty. This can significantly deplete your retirement savings.
For most people, rolling over to an IRA or a new employer's 401(k) is the most beneficial approach. This guide will focus on these common rollover methods.
Step 1: Determine Your Rollover Destination and Type
Hey there, future financially secure self! The very first thing you need to do is decide where you want your Empower 401(k) funds to go. Do you want to consolidate them with your new employer's plan, or would you prefer the flexibility and broader investment options of an IRA?
Sub-heading: Choosing Between an IRA and a New 401(k)
Consider these factors:
Investment Options: IRAs typically offer a much broader selection of investments compared to most 401(k) plans. If you're looking for more control and diversification, an IRA might be for you.
Fees: Compare the fees of your current Empower 401(k) (if you were to leave it there), your new employer's 401(k), and potential IRA providers. Fees can significantly impact your long-term returns. IRAs, especially at discount brokerages, can often have lower administrative and investment fees.
Convenience: Rolling into your new employer's 401(k) can be convenient for consolidation. However, managing an IRA often comes with user-friendly online platforms and dedicated support.
Creditor Protection: 401(k)s generally offer stronger federal creditor protection than IRAs, though IRA protection varies by state. This might be a consideration for some.
"Rule of 55": If you leave your job at age 55 or older, you can take penalty-free withdrawals from your 401(k). This "Rule of 55" does not apply to IRAs.
Backdoor Roth IRA Strategy: If you earn too much to contribute directly to a Roth IRA, having a Traditional IRA can complicate a "backdoor Roth IRA" conversion. If you plan to utilize this strategy, rolling your pre-tax 401(k) into a new 401(k) (or leaving it where it is) rather than a Traditional IRA might be more advantageous.
Sub-heading: Direct vs. Indirect Rollover
Once you know your destination, you'll need to choose the type of rollover:
Direct Rollover (Highly Recommended): This is where Empower (your old plan administrator) directly transfers the funds to your new IRA custodian or new employer's 401(k) plan. The money never touches your hands. This is the safest and most common method because it avoids any mandatory tax withholding and the risk of missing the 60-day deadline.
Indirect Rollover (Generally Avoid): In an indirect rollover, Empower sends a check payable to you. You then have 60 days from the date you receive the check to deposit the full amount into your new retirement account. If you fail to deposit the full amount within 60 days, the IRS considers it a taxable distribution, and you'll owe income tax and potentially a 10% early withdrawal penalty if you're under 59½. Crucially, Empower will be required to withhold 20% of your balance for federal income taxes. You'll need to make up this 20% from other funds to roll over the full amount, and then claim the withheld amount back as a tax credit when you file your taxes. This method carries significant risks and is generally only advised in very specific, rare circumstances where you need temporary access to the funds and are absolutely certain you can redeposit the full amount within 60 days.
For a seamless and tax-efficient rollover, always aim for a direct rollover.
Step 2: Open Your New Retirement Account (if necessary)
If you've decided to roll over your Empower 401(k) to an IRA, your next step is to open that IRA. If you're rolling into a new employer's 401(k), this step might be less involved, as the new plan is already established.
Sub-heading: Opening a Rollover IRA
Choose a reputable financial institution (e.g., Vanguard, Fidelity, Charles Schwab, E*TRADE). Consider their fees, investment options, customer service, and online tools.
Online Application: Most institutions allow you to open an IRA online. The process is usually straightforward and takes about 15-20 minutes.
Choose the Right Type:
If your Empower 401(k) was a traditional (pre-tax) 401(k), you'll typically open a Traditional IRA to maintain the tax-deferred status.
If your Empower 401(k) was a Roth 401(k), you'll open a Roth IRA to maintain its tax-free growth and withdrawals in retirement.
You can also convert a traditional 401(k) to a Roth IRA, but be aware that this is a taxable event. You'll owe income taxes on the converted amount in the year of conversion.
Designate it as a "Rollover" IRA: When setting up the account, make sure to specify that it's for a rollover. This helps with proper tax reporting.
Sub-heading: Preparing for a New Employer's 401(k) Rollover
If you're rolling into your new employer's 401(k):
Contact your new HR/Benefits Department: They will provide you with information on their 401(k) plan, including whether it accepts rollovers from previous plans and the specific forms and procedures required.
Gather Plan Details: You'll need the name of the new plan administrator, their contact information, and potentially the plan number.
Step 3: Contact Empower to Initiate the Rollover
This is where you make the official request to move your funds from your Empower 401(k).
Sub-heading: Gathering Necessary Information from Empower
Before you call, have the following information ready:
Your Empower 401(k) account number.
Your Social Security Number.
Your previous employer's name and plan number (if applicable).
For a direct rollover: The name of your new IRA custodian (e.g., Fidelity, Vanguard) or new employer's 401(k) plan administrator, their mailing address for checks, and the new account number.
For a Roth conversion: Be prepared to discuss the tax implications and ensure you understand them fully.
Sub-heading: Making the Call to Empower
Empower Customer Service: You can typically reach Empower's customer service for rollovers at 1-866-360-1192, Option 3. Their hours are generally Monday through Friday, 8 a.m. to 10 p.m. Eastern Time. You can also try their general customer service at 1-800-338-4015.
Clearly State Your Intention: Inform the representative that you wish to initiate a direct rollover of your 401(k) funds. Emphasize "direct rollover" to avoid any confusion that could lead to an indirect rollover with tax withholding.
Request the Necessary Forms: Empower will likely require you to fill out a distribution or rollover request form. They may be able to send it to you electronically or by mail.
Confirm Destination Details: Double-check that Empower has the correct account name, account number, and mailing address for your new IRA custodian or new 401(k) plan. Any errors here could delay the process or lead to issues.
Inquire About Any Fees: Ask if Empower charges any fees for processing the rollover. While rollovers themselves are typically tax-free, some providers might have administrative fees.
Step 4: Complete and Submit Rollover Forms
Once you receive the necessary forms from Empower, fill them out carefully and completely.
Sub-heading: Important Details on the Forms
Distribution Type: Ensure "Direct Rollover" is clearly marked.
Receiving Institution Information: Accurately provide the name, address, and account number of your new IRA custodian or new employer's 401(k) plan.
Tax Withholding: For a direct rollover, there should be no federal income tax withholding. If you see a section for tax withholding, double-check that you've selected a direct rollover.
Signatures: Make sure all required signatures are present.
Supporting Documentation: Empower might request a recent statement from your new IRA or 401(k) to verify the account.
Sub-heading: Submitting the Forms
Follow Empower's Instructions: Empower will specify how to submit the forms (e.g., mail, fax, online upload).
Keep Copies: Always make copies of all submitted forms for your records. This is crucial for tracking the process and for your tax records.
Step 5: Track the Rollover Process
The rollover process can take anywhere from a few days to a couple of weeks, depending on Empower and the receiving institution.
Sub-heading: Monitoring Your Accounts
Check Your Empower Account: Keep an eye on your Empower 401(k) account online to see when the funds are disbursed.
Check Your New Account: Regularly check your new IRA or 401(k) account to see when the funds arrive.
Communicate if Needed: If you notice any significant delays or discrepancies, don't hesitate to contact both Empower and your new financial institution to inquire about the status.
Confirm Investment Allocation: Once the funds are in your new IRA or 401(k), you'll likely need to actively choose how to invest them. Don't let the money sit in a default money market fund indefinitely.
Step 6: Confirm and Reinvest Your Funds
Congratulations! Your funds have successfully been rolled over. The final step is to ensure they are invested according to your financial goals.
Sub-heading: Investing in Your New Account
Review Your Investment Strategy: If you rolled into an IRA, you now have a vast universe of investment options. Take the time to research and select investments that align with your risk tolerance, time horizon, and retirement goals. Consider consulting with a financial advisor if you're unsure.
Set Up Beneficiaries: Don't forget to designate beneficiaries for your new IRA or 401(k) account. This ensures your assets are distributed according to your wishes in the event of your death.
Consolidate Statements: If you've rolled over multiple old 401(k)s into one IRA, you'll now have a consolidated view of your retirement savings, making it easier to track and manage.
Important Considerations & Potential Pitfalls to Avoid:
The 60-Day Rule: As mentioned, if you receive a check directly (indirect rollover), you must deposit it into a qualified retirement account within 60 days to avoid taxes and penalties.
Mandatory 20% Withholding (Indirect Rollover): If you opt for an indirect rollover, Empower is legally required to withhold 20% of the distribution for federal taxes. You'll need to replace this amount with other funds to roll over 100% of your original balance.
Required Minimum Distributions (RMDs): If you are already subject to RMDs (Required Minimum Distributions), you must take your RMD for the year before initiating a rollover.
Company Stock: If your Empower 401(k) holds company stock, there might be special tax rules (Net Unrealized Appreciation - NUA) that could make a direct rollover of the stock to a taxable brokerage account more advantageous. Consult a tax advisor if this applies to you.
Outstanding 401(k) Loans: If you have an outstanding loan from your Empower 401(k), it typically becomes due upon separation from employment. If you cannot repay it, the outstanding balance may be treated as a taxable distribution.
10 Related FAQ Questions Subheadings (Starting with 'How to')
Here are some quick answers to frequently asked questions about rolling over an Empower 401(k):
How to find my old Empower 401(k) account?
You can typically find your old Empower 401(k) account by visiting the Empower Retirement website and using their "Find Your 401(k)" or "Login" section. You might need your Social Security Number and previous employer's name. You can also call Empower customer service directly.
How to decide between rolling over to an IRA or a new employer's 401(k)?
Consider factors like investment choices (IRAs generally offer more), fees (compare costs), convenience of consolidation, creditor protection (401(k)s generally stronger), and if the "Rule of 55" or Backdoor Roth IRA strategy applies to you.
How to initiate a direct rollover with Empower?
Contact Empower's customer service (1-866-360-1192, Option 3 is a good starting point) and clearly state your desire for a direct rollover. They will provide the necessary forms.
How to avoid taxes and penalties when rolling over my Empower 401(k)?
Always opt for a direct rollover. This ensures the funds are transferred directly between institutions, avoiding mandatory 20% tax withholding and the 60-day rule penalty.
How to handle an indirect rollover if I accidentally chose it?
If you receive a check made out to you, you must deposit the full amount (including the 20% withheld for taxes, which you'll need to add from other funds) into a qualified retirement account within 60 days of receiving the check. If you miss this deadline, it becomes a taxable distribution.
How to invest funds after rolling over my Empower 401(k) to an IRA?
Once the funds are in your new IRA, you'll need to select investments that align with your financial goals and risk tolerance. You can choose from a wide range of options like mutual funds, ETFs, stocks, and bonds. Consider consulting a financial advisor.
How to contact Empower customer service for rollover questions?
You can call Empower's Rollover Services Team at 1-866-360-1192, Option 3 (available Monday - Friday, 8 am - 10 pm ET). For general inquiries, you can also try 1-800-338-4015.
How to understand the fees associated with rolling over an Empower 401(k)?
While the rollover itself is typically not taxed, some plan administrators (like Empower) or new IRA custodians may charge administrative or processing fees. Always ask about these fees beforehand. Compare expense ratios of investment options in different plans.
How to roll over a Roth 401(k) from Empower?
If you have a Roth 401(k) with Empower, you can roll it over to a Roth IRA or a new employer's Roth 401(k) without incurring taxes, as long as it's a direct rollover and you meet the Roth IRA qualified distribution rules (5-year rule and age 59½, disability, or death).
How to handle company stock in my Empower 401(k) during a rollover?
If your Empower 401(k) contains company stock with significant unrealized gains, you might want to explore the "Net Unrealized Appreciation (NUA)" rule with a tax advisor. This strategy can allow you to move the stock to a taxable brokerage account and pay ordinary income tax only on the cost basis, with future appreciation taxed at capital gains rates, potentially saving you a substantial amount in taxes.
