Getting your 401(k) rollover in the right order with Scotia Wealth Management

When does 401(k) rollover advice start to matter if you're retiring this year?

Rollover advice starts to matter about six months before your separation date, because the order of moves is what protects you. A 63-year-old like Peggy (hypothetical, round numbers), a widowed sales executive retiring this year, decides her $600,000 of company stock first, rolls the rest directly, then sets year-one withdrawals.

One 'roll everything' form signed in the last week skips all three, and rolling that stock into an IRA ends net unrealized appreciation (NUA) treatment for good.

What happens if Medicare, a new job or a market drop changes things after the rollover?

Scotia Wealth Management reviews the IRA roadmap every year and adds a review when an event changes the numbers: the income years at 63 and 64 that set Medicare premiums at 65, Medicare enrollment, a Social Security claim at 67, a new employer plan that accepts roll-ins, a change to a beneficiary share, or withdrawals running more than 10 percent off the roadmap.

Treating the rollover as finished the day the money lands is how executives miss these milestones. For 2026, CMS sets the standard Medicare Part B premium at $202.90 monthly for single filers whose income two years earlier was up to $109,000, and $284.10 above that up to $137,000, so Peggy's income at 63 and 64 prices her Medicare at 65. Markets fall as well as rise, and any investment can lose money, principal included; a drop is exactly why we look again once withdrawals drift from the roadmap.

Find your own age in the table first; the 55 and 75 rows change the answer most often, and neither is obvious from the rollover form.

If you're past 59½ and withdrawals will start within 12 months, decide the company stock separately first. Then move the rest by direct rollover before the first withdrawal, because plan installments shorter than ten years carry mandatory 20 percent withholding, while an IRA lets you choose yours.

If you'd rather fill out the rollover forms yourself

When the plan cuts a check in your own name, it keeps 20 percent for federal withholding: $20,000 on a $100,000 payout. That $20,000 is taxed unless you replace it from other cash within 60 days, and a 10 percent additional tax may apply under 59½. The deposit may land in the wrong account, or the new IRA may open without a beneficiary, since the 401(k) form doesn't follow the money. Scotia Wealth Management names the beneficiary the day the IRA opens. Rolling in company stock ends NUA for good, and depositing an RMD into an IRA draws a 6 percent excise tax.

Week by week through a 401(k) rollover with Scotia Wealth Management

Many executives arrive with the forms half filled in. Our first move is to read what's already drafted, because a form that looks like routine paperwork is where money ends up in the wrong place. Here is how the first 13 weeks run for Peggy.

One limit worth stating: rollover advice doesn't make the NUA decision for company stock; that is its own analysis. And if you leave the job between 55 and 59½, or the plan offers low-cost institutional funds you're happy with, leaving some or all of the money in the plan can beat an IRA.

• Weeks one and two: we collect the latest plan statement, the summary plan description and the separation date, then list every money source: pre-tax, Roth, after-tax and company stock with its basis. We compare the plan's fund costs with an IRA's. If the plan is cheap and works, part of it can stay, and we say so instead of moving everything.
• Weeks three and four: the company stock decision is finished first. The IRA opens with Peggy's son named as beneficiary the same day, and the plan's rollover form names the payee as the new custodian, 'FBO Peggy, IRA.'
• Weeks five through eight: plans often take several weeks to cut the check or send the wire, so we track it and confirm on the custodian's statement that the money landed in the IRA, not a brokerage account. A cash reserve covers withdrawals while the money is in transit.
• Weeks nine through 13: the first monthly IRA withdrawal is set with the withholding she chooses. We flag the 1099-R (code G) due in January and the Form 5498 due in May so her tax preparer can match them.

What happens if you take monthly withdrawals straight from the old plan?

Installments paid over fewer than ten years are eligible rollover distributions, so the plan must withhold 20 percent for federal tax. On $4,000 monthly that is $800 withheld, leaving $3,200, and $9,600 over the year. The plan withholds that much even when the tax you actually owe on the withdrawals is far lower.

Peggy's 401(k) from an earlier employer holds $96,000. She wants it to pay her first two years of withdrawals, $4,000 monthly or $48,000 annually, before Social Security starts, and she draws on it first because it's small and simple. That is the trap: six figures feels like the threshold for professional help, yet the withholding rule applies to a $96,000 balance exactly as it does to $960,000.

Assume, for illustration, that her actual federal tax on the $48,000 is 10 percent, or $4,800. The plan withholds $9,600, so $4,800 sits with the IRS until she files. Month by month, $800 is withheld against a true tax of $400, which leaves her $400 short of the spending money she budgeted; she receives $3,200 instead of $3,600.

The better order is a direct rollover of the $96,000 into an IRA first, then $4,000 monthly with 10 percent withholding elected: $400 withheld and $3,600 net each month, or $4,800 withheld over the year, which matches her tax. Scotia Wealth Management checks that election against her expected tax before the first payment, since a rate set too low creates a bill in April. Past 59½ there is no 10 percent additional tax either way, so the gain is cash flow, not tax saved.

Depositing the direct rollover check into the wrong account does more damage than the withholding. If Peggy's $96,000 landed in her individual brokerage account because the deposit slip carried that account number, the full $96,000 would look like taxable income. Caught within 60 days, the custodian can move it into the IRA; caught at tax time, the fix needs a written admission of error from the custodian plus IRS relief, either the automatic waiver for institution errors or a self-certified late rollover.

Is a rollover review due before your separation date?

A rollover review is due now if you leave your employer within six months, if the plan holds company stock, or if withdrawals start within 12 months; otherwise it can wait until a date is set. Send your latest plan statement and expected separation date with your request to Scotia Wealth Management, so the first conversation starts from your actual sources and balances.