A rollover from a defined benefit plan to a 401(k) plan is just like any other type of rollover. When you leave an employer that offers a defined benefit plan, or you work for an employer that terminates its defined benefit plan, then you will be eligible to roll your plan over into an IRA or another employer-sponsored retirement plan such as a 401(k) plan.
Some defined benefit plans will allow you to roll your whole plan balance over at once, while others require you to move your plan balance over in segments. The larger the plan you have, the smaller the chance that you'll be able to roll over your entire balance at once. Any amount of your defined benefit plan that is to be used for required minimum distributions cannot be rolled over. Your plan will inform you at the time of separation or termination what your rollover options are. If you made after-tax contributions to your defined benefit plan, then you will need to keep track of that money and keep it separate from the rest of your plan that was funded with pretax money so that it doesn't get taxed twice. And, of course, the 401(k) plan that is receiving your defined benefit plan balance must allow for rollovers from other plans (and most of them do). You can also roll your defined benefit plan into a Roth 401(k) if you choose, but you'll have to pay taxes on the rollover amount at the time of distribution.401(k) Rollover Requirements
401(k) Rollover Taxes
Defined Benefit Plan Rollover to 401(k) FAQs
A Defined Benefit Plan Rollover to 401(k) is when an individual moves the funds held in their defined benefit plan into a 401(k) retirement account. This may be done for tax planning purposes, access to more investment options or other reasons.
Rolling over from a defined benefit plan to a 401(k) should be considered when you want access to more customizable investment options and if you are looking for additional flexibility with your retirement savings. It can also offer greater control and transparency of your investments, as well as potentially more favorable tax implications.
The process for transferring funds from your defined benefit plan to a 401(k) will depend on the specific details of each individual case, however in most cases you can rollover eligible funds directly from one account to another without being subject to paying any taxes.
Rolling over a defined benefit plan into a 401(k) may expose an individual to increased investment risk and fees, which could reduce their overall return on investments. Additionally, if the transfer is not done correctly it may be subject to penalties or taxes, which could significantly reduce the amount of money that can be saved for retirement.
It is always worth seeking out qualified financial advice in order to understand the full implications of any decisions being made with regards to your retirement savings. This will ensure that you are able to make informed decisions and access all available options in order to maximize your returns while minimizing risk.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.