KnowHow Archive

Plan Sponsor Guide Participant Guide

Ready to Roll Over?

Retirement, lifestyle changes, employee turnover: We live in times of significant change for plan sponsors, and for participants. Your plan has played a vital role in helping your participants prepare for this day and now they are faced with a critical decision—what to do with those savings now that their employment status is changing?

» Rollovers— What you need to know
With the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), participants have more options for rollovers than ever before.  Participants now can transfer balances between governmental Section 457 plans, 403(b) tax-sheltered annuities, and 401(k) programs.  With some restrictions, amounts from Individual Retirement Accounts (IRAs) can be rolled over to an eligible retirement plan, and amounts attributable to employee after-tax contributions are now eligible as well.
These days, it is increasingly likely that participants will have multiple pockets of retirement savings—at prior employer plans, individual IRAs, etc.—and statistics suggest that employees wisely are continuing to keep those balances within the retirement plan structure.
However, statistics also indicate that participants who take these distributions in cash—perhaps even those with good intentions to reinvest the money in another retirement account—often spend the money instead.
This month's Know How is designed to help your participants make sense of the options available to them when it comes to keeping up with their retirement savings accounts. 
Rollovers— What you need to know  

Your participant has requested a withdrawal; you need to inform the participant of the distribution options for the 401(k) account balance.
In general, the participant will have five options: 

  • Move the money to an IRA.
  • Move the money to another qualified plan.
  • Keep the money in your plan.
  • Take the money as cash.
  • Take the money as an annuity.

It pays to share the IRS Safe Harbor explanation with the participant. This explains to the employee the action you, as the plan sponsor, have to take if he elects to take his money as cash, specifically the tax repercussions. The full statement is available on
In addition, you should make sure the participant has all the proper paperwork to accomplish the options he chooses and be ready for any questions he might have about the options and their consequences. Additional help is available in the Post-Retirement Solution on