What if i Take a 401k Cash Distribution and do NOT Rollover into IRA? A Direct IRA Rollover is when your 401k retirement savings (or 401k distributions) are transferred directly from your old employer's account to your own Individual Retirement Account through a trustee-to-trustee transfer. This law is implemented to discourage retirees from withdrawing money from their plans early on and let it earn the power of compounding interest. Most employers do not allow employees to withdraw money from their 401k plans during their working life. 1. You can sell the stocks at current market prices and rollover the cash to your IRA Rollover Account. What is a Direct IRA Rollover? If you take the cash from your old employer administered 401k plan instead of rolling it over to a Rollover IRA, you will have to pay early withdrawal penalties (10%) and a 20% tax withholding fee. This means the money never actually reaches your hands, it is wired from your old 401k administrator to your new one. However, if you are older than 59 and 1/2, this 10% early-withdrawal penalty fee does NOT apply to you.
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