There are many 401k rollover rules that were put in place to stop people from withdrawing tax-free money from their retirement accounts. Whenever someone opens a 401k retirement account, a plan is put in place so that this person will be paid for the years after he or she stops working. Nevertheless, when this is done, the taxes are also stopped, so that people will not have to pay them from this money until their retirement day. Even though this does not sound like big deal for most people, the IRS believes that everytime someone withdraws from their account, they could face high taxes.
401k rollover rules are in place to stop you from withdrawing tax free money. When you open a 401k retirement account, you put in place a plan that will pay for the years after you stop working. However, when you do this, you also avoid having to pay taxes on that income until you withdraw it during your retirement years. That may sound like it is no big deal, but the IRS feels that any time you withdraw from this account that you could face costly taxes.
Therefore, there is not just one important 401k rollover rule, but there are quite a few of them. For instance, if your employer changes the investment plan, you will have to move your 401k account into his new plan. Moreover, when you are switching work places, the old employer will send the funds to the new employer, where they will go straight to the account manager from the new company you work for. If you wish to move your funds from the 401k plan to another kind of retirement plan, such as making a 401k rollover to IRA, this can also be done with no penalty. The only cases when your employer will hold back 20 percent of your retirement balance that will be used for possible taxation is if you want to move the funds yourself or if you want to cash out the account. Also, in this last situation, the IRS will charge you some taxes that depend on your income tax level, in addition to a 10 percent penalty.