Frequently asked questions

I want to roll my retirement assets over. How do I do that?

If you received distribution forms from your employer, complete them using the accompanying instructions. If you need forms, contact your benefits department to obtain them. You may also be able to download forms by logging in to your plan account.

If you want to roll into an IRA, any money in a Roth 401(k) or 403(b) account will be rolled into a Roth IRA. Non-Roth accounts can be rolled into a traditional IRA or Roth IRA. Rollovers to Roth IRAs from non-Roth accounts are taxable. If you want to roll your money into your new employer’s plan, ask your new employer if you’re eligible and if the plan accepts rollovers. You can’t roll over money from Roth accounts into plans that don’t offer the Roth option.

Talk to your financial professional about the best option for your situation.

Rollover Specialists are available to assist you at (800) 421-9923, Monday through Friday, from
8 a.m. to 7 p.m., Eastern time.

Back to questions

If I choose a direct rollover to an IRA or a new plan, will I receive any kind of confirmation?

You will receive a Form 1099-R from your old plan’s provider indicating that the direct rollover was made. There will be no federal income tax withholdings, so your entire balance will be rolled over, and you’ll continue benefiting from the tax advantages. If you roll your money into an IRA, you will receive a Form 5498 and an account confirmation from the receiving IRA trustee or custodian. If you roll your money into a new plan, you can ask your old and new employers if you will receive confirmation of the rollover.

What happens if I already took the cash from my account? Can I still roll over to an IRA or to a new plan?

Yes, but you must do so within 60 days of receiving your distribution to keep the tax benefits. This is known as an indirect rollover.

Your employer withheld 20% of the taxable portion of your distribution for federal income taxes. State income taxes may also have been withheld.

If you replace this withholding with your own money, you can roll over the entire amount of your distribution. You’ll get the withholding back from the IRS when you file your taxes.

If you roll over your distribution but don’t replace the withholding, the amount withheld will be considered a distribution subject to taxes and possible penalties.

You can avoid these problems with a direct, or trustee-to-trustee, rollover, in which funds go straight from your old plan’s trustee to an IRA or your new plan’s trustee — not through you.

Do I have to take my retirement plan assets when I change jobs?

Company retirement plan rules can vary, but most follow the same basic guidelines. If your vested account balance is less than $1,000, your plan might cash you out. If your vested balance is between $1,000 and $5,000 ($7,000 beginning in 2024), your plan might roll your balance into an IRA selected by your former employer.

Back to questions

Where can I transfer my retirement plan account?

You can roll your retirement plan assets into an IRA or move it into a new employer’s plan.

If you want to roll into an IRA, any money in a Roth 401(k) or 403(b) account will be rolled into a Roth IRA. Non-Roth accounts can be rolled into a traditional IRA or Roth IRA. You’ll be responsible for any unpaid taxes on the taxable portion of a Roth IRA rollover. If you want to roll your money into your new employer’s plan, ask your new employer if you’re eligible and if the plan accepts rollovers. You can’t roll over money from Roth accounts into plans that don’t offer the Roth option.

Can I move my assets from one type of plan to another, for example, from a 403(b) to a 401(k)?

You can generally move the vested portion of your account from one type of plan to another as long as the new plan accepts rollovers.

Your after-tax contributions are only transferable between similar plans (for example, from a 403(b) plan to 403(b) plan), and you must move your money directly between plans.

Check your new plan to see if it accepts rollovers of Roth assets and/or after-tax contributions.

What if I own company stock in my plan when I leave my job?

Your employer may require you to sell your shares when you leave the plan. You can then roll the proceeds into an IRA or to your new employer’s plan. Or, if your old plan allows, you can roll your shares from the plan directly into a rollover IRA established through a broker.

Check with your former employer about the rules governing the buying and selling of company stock, as well as the tax consequences. It may be to your advantage to take your distribution in stock rather than cash.

Back to questions

What happens if I leave my employer and I have an outstanding loan from my plan account?

Keep in mind that most plans require that loans be repaid when you leave. However, you may be able to roll the outstanding balance of your loan to your new employer’s plan. You should check with your new employer to find out if the loan will be accepted by the new plan. You cannot roll your loan over to an IRA.

If you can’t move the loan to your new plan, and if you don’t repay the loan within the time allotted, the outstanding balance will be treated as a withdrawal, subject to federal and applicable state and local taxes. If you’re under age 59½, you may also have to pay a 10% early withdrawal penalty unless you qualify for an exception.

Can I roll over my required minimum distribution (RMD)?

No. RMDs are not eligible for rollover.

Note: RMDs generally are minimum amounts that you must withdraw annually starting with the year that you reach 73 or, if later, the year in which you retire. If you don’t withdraw the minimum amount each year, the IRS may impose a 25% penalty on any amount that should have been withdrawn but wasn’t. Roth IRAs are not subject to RMDs over your lifetime. Roth accounts in employer retirement plans will not be subject to RMDs over your lifetime starting with taxable years beginning after December 31, 2023.

If I decide to open an IRA, do I have to roll over my entire account balance?

It depends on the terms of your plan. Some plans may allow you to roll over any portion of your vested account balance. You should initiate a direct rollover if you want to avoid having federal income tax withheld on the taxable portion of your distribution.

Can I roll my account balance to more than one IRA?

Yes, you can have as many accounts as you like.

If I make contributions to my rollover IRA, can I still roll the IRA into an employer plan?

You may be able to transfer your IRA balance into your new plan if the new plan accepts rollovers from IRAs. Before rolling your money into a new plan, you should compare the plan’s investment options and withdrawal rules with those of your IRA. You may give up some flexibility or face stricter requirements if you make the move.

Back to questions

Can I roll my retirement assets directly into a Roth IRA?

Yes.

However, you’ll be responsible for any unpaid taxes on the taxable portion of a Roth IRA rollover.

Talk to your financial professional about your options. American Funds IRA Rollover Specialists are available to assist you at (800) 421-9923, Monday through Friday, from 8 a.m. to 7 p.m., Eastern time.

Can I transfer the American Funds shares held in my retirement plan account into an IRA?

It depends on your retirement plan. Check your plan’s Summary Plan Description to see when you’re allowed to take a distribution. If you qualify to take a distribution (other than a hardship distribution or a required minimum distribution) and you own American Funds Class A or C shares, you can request a direct rollover to an IRA. If you own American Funds Class R shares, they have to be sold so that the proceeds can be used to purchase an IRA with Class A or C shares. Certain fee-based broker-dealers offer IRAs with Class F shares.

Back to questions

If I roll my account into an American Funds IRA, what sales charges or account fees will I have to pay?

It depends. Generally, an amount already invested in American Funds can be rolled over into an American Funds IRA without paying any up-front sales charges. Any amount held in investments other than American Funds is subject to applicable sales charges.

A one-time $10 setup fee will be deducted from your account when you open an American Funds IRA. There is also an annual custodian fee (currently $10).

Why do I have to designate a financial professional for my American Funds IRA?

American Funds are sold only through financial professionals because we believe that their expertise and guidance are essential to successful financial planning. Financial professionals are there to answer your questions and help you through the decision-making process. If you would like a referral to a professional in your area who is familiar with our funds and services, please call us at (800) 421-4120.

Can I cash out of my retirement plan?

You can take the cash, but financial experts may advise against it. You may end up with less than you expected because of taxes.

Qualified withdrawals from Roth 401(k) or 403(b) accounts, including earnings, are tax-free. Only the earnings portion of nonqualified withdrawals from Roth accounts is taxable. Withdrawals from Roth accounts are qualified if the account was established at least five years before, and if you’re at least 59½ years of age or if withdrawals are made because of disability or death. Withdrawals from non-Roth accounts are generally taxable.

If you’re under 59½ when you cash out of your plan, you may also pay a 10% early withdrawal penalty. Some exceptions:

• If you’re 55 or older when you separate from service, withdrawals are penalty-free but still taxable.
   
• The penalty may not apply if you become disabled, have died or have certain medical expenses.
   
• If you take your distribution in substantially equal payments for at least five years or until you turn 59½, whichever is longer, you may not have to pay the penalty.

Ask your financial professional for more information about these exceptions.

Back to questions

Do I have to leave my job to withdraw my retirement plan money?

Not necessarily, although that’s what most plans require. If your employer terminates your retirement plan or if you become disabled, you may be given an opportunity to take a distribution. Also, some plans permit you to draw on your retirement plan money after a fixed number of years, or upon reaching a certain age, such as 59½ or the plan’s designated retirement age.

Is there any portion of a distribution that’s tax-free?

Yes, if the distribution includes after-tax contributions or Roth after-tax contributions. Non-Roth after-tax contributions can be distributed tax-free, but earnings are taxable. Qualified distributions from Roth 401(k) or 403(b) accounts are tax-free. However, the earnings portion of nonqualified Roth distributions is taxable.

How can I reduce the taxes I have to pay when I cash out?

Instead of cashing out your entire account balance, consider taking a distribution for just what you need. That way, you avoid paying applicable taxes and penalties on the rest of your account. The remaining amount can be rolled to an IRA or, possibly, moved to a new employer’s plan or left in your old employer’s plan.

If you take a lump-sum distribution and you were born before 1936, you may qualify for preferential tax treatment called 10-year forward averaging. 10-year forward averaging allows you to figure the tax on your lump-sum distribution by applying 1986 tax rates to one-tenth of the taxable amount of your distribution, then multiplying the resulting tax amount by 10. This tax is payable for the year in which you receive the lump-sum distribution.

To qualify for 10-year forward averaging, certain rules must be met. Please check with your financial professional to discuss the specific rules and whether the 10-year forward averaging option is right for you.

Back to questions

What if I have more questions about what I should do with my retirement plan money?

Contact your personal financial professional or the retirement plan’s financial professional.