401k rollover contributions is another way to put money into your 401k.
One of the great things about 401k’s-and retirement plans in general-is that they are portable, meaning that you can move them from one account to another. If you have 401k assets in a plan held by a previous employer, you may very well be able to move that money to your current employer’s plan. This is called a 401k rollover.
Normally, if you take a distribution from a 401k you will be required to pay taxes and penalties to Uncle Sam. However, if you roll your distribution over to another 401k plan you can avoid those taxes and penalties and continue to let your money grow tax-deferred.
It’s important to note that although the IRS allows such transfers to occur, some employer plans may not accept rollovers-in from other plans (though all plans are required to allow a rollover-out when a distributable event occurs). Check with your benefits office to determine what they allow.
Each plan-the one accepting the rollover and the one initiating the rollover-must know that the rollover is legitimate.
For example, the initiating plan may request what’s called a Letter of Acceptance (LOA) from the receiving plan. The LOA proves to the initiating plan that the money will be, in fact, going to another qualified plan, and that they are prepared to accept the assets.
On the other side, the receiving plan may request a Letter of Certification, certifying that the assets are coming from a qualified plan. They may even request a statement from the prior plan as well.
Despite all of this, many plans require nothing but your signature certifying that the rollover assets are legitimate. This, of course, is ideal. But again, remember to check with each of your benefits offices to confirm what they require.