How to Transfer Money from 401(k) to Bank Account?
Learn how to transfer money from 401(k) to bank, and the duration it takes to receive the money in your bank account.
When you quit your job or retire, you have to choose what to do with your accumulated 401(k) retirement savings. Usually, you can leave your retirement money with the former employer, rollover to an IRA, or transfer the money to your bank account. While it is a smart move to keep retirement money in a retirement account, you can cash out if you need money urgently.
To transfer money from a 401(k) to a bank account, you should send a withdrawal request to the 401(k) plan administrator. It can take up to seven business days for the withdrawal to be processed, and you can expect to receive your funds shortly thereafter. Usually, direct deposits take a shorter duration to arrive than paper checks.
Options for Transferring Money from 401(k) to Bank
When withdrawing funds from your 401(k) plan, you can opt to receive your money using the following two methods:
Most 401(k) retirement plans allow participants to receive withdrawals via mailed checks. You can send a withdrawal request to the plan administrator, and ask them to send the funds via check. You should also provide the address where the check will be sent. Once the check is sent, you can expect to receive it in your mail in 3 to 5 days.
If you opt to receive your 401(k) via direct deposit, the 401(k) plan administrator will disburse the funds directly to your savings or checking account. Start by making a withdrawal request to the plan administrator, and select direct deposit as the preferred method of payment. The request will go through a withdrawal processing period of five to seven days before the money is released to your account. Once the money is released, it will reflect in your bank account within 48 hours.
Transferring Money from a Roth 401(k) to a Bank Account
If you are taking a qualified distribution from a Roth 401(k), the IRS requires that participants must have contributed to the plan for at least five years, and have attained age 59 ½. To make a withdrawal, send a request to the 401(k) plan custodian, and choose to be paid via check or direct deposit. Roth 401(k) withdrawals can take seven to 10 days.
How long does it take to transfer 401(k) money to the bank?
Transferring funds from a 401(k) account to a bank account can take seven to 10 days or more. This period includes a withdrawal processing period which can be anywhere from five days to seven days. After that, the funds will be released, and you can expect to receive the withdrawal in one or two days if you selected direct deposit or up to five days if you opt to receive a mailed check. However, this duration may vary depending on the plan custodian.
Generally, 401(k) funds are invested in mutual funds, which mainly comprise stocks and bonds. When you make a withdrawal request, your share percentage of investments must be liquidated, and the proceeds transferred to the 401(k) plan administrator. Once the plan custodian receives the money, the funds are transferred to your bank account via direct deposit or mailed check.
Age Requirements to Withdraw 401(k) Money
The IRS provides several rules to retirement savers regarding the age when they can withdraw money from a 401(k) plan. Here are age requirements to consider:
Before 59 ½
If you want to withdraw money from a 401(k) before you attain age 59 ½, you must pay a 10% penalty tax for taking an early distribution. In addition, you will owe taxes on the withdrawal amount. However, certain exemptions may allow you to take an early distribution without incurring the 10% penalty tax.
After 59 ½
Once you have attained 59 ½, you can transfer funds from a 401(k) to your bank account without paying the 10% penalty. However, you must still pay income on the withdrawn amount. If you have already retired, you can elect to receive monthly or periodic transfers to your bank account to help pay your living costs.
The IRS requires retirement account holders to start taking Required Minimum Distributions (RMDs) after reaching 72 (70 ½ before December 2019). You must take the first distributions by April 1 after the year you reach 72, and on by December 31 every year after the first RMD. The IRS provides RMD worksheets (PDF) that retirement savers can use to calculate the minimum amount to withdraw for every age from 72.
Tax Implications of a 401(k) Money Transfer to Bank
A 401(k) is a tax-deferred retirement account, and the money contributed to the account grows tax-free. Any gains on investments are not taxed until when they are withdrawn.
When you make a withdrawal, you will owe taxes at the federal income tax rate. A higher withdrawal amount pushes you into a higher tax bracket, and you will have to pay higher tax amounts on your withdrawal. For example, if you withdraw $20,000, and you are in the 35% tax bracket, you will have to pay $7,000 in income taxes.