Unfortunately, 401(k) rollover is an area where mistakes can occur. If you choose to roll over your money, look to avoid these common mistakes:

• Not following the 60-day rule – Once you start to roll over your 401(k), the government gives you 60 days to transfer the funds into an individual retirement account or other qualified plan. If you fail to do this in the allotted time, the assets – which are now in the form of a check – are considered regular income, and you are required to pay taxes – usually 20 percent of the entire amount. Additionally, if you are younger than 591⁄2, there will be a 10 percent early withdrawal penalty.
• Forgetting the one-year rollover waiting rule – You only can roll over a 401(k) to an IRA once a year. The one-year waiting period starts when you receive the distribution, not on the date you did the rollover. Keep in mind that the rule applies to each IRA account, not to the individual.
• Failing to clear up any outstanding debt – If you’ve withdrawn a loan against your 401(k) and have not paid it back before you leave your employer, they employer could deduct the loan amount from the total distribution. You can pay back the amount of the loan with money from other accounts and then roll over the entire balance. If the loan amount is not paid back, the Internal Revenue Service will view its amount as a taxable distribution
• Same property rule – You must roll over the same assets to your new IRA. The rule means that you cannot take a cash distribution from your 401(k), purchase other investments with the cash and then roll over those assets into a new IRA. Should this occur, the IRS will treat the distribution as taxable income.
• Remembering that required minimum distributions are not eligible for an IRA rollover – If you are 701⁄2 years or older, you must take an annual required minimum distribution from your IRA. This required amount cannot be rolled over, as that would be considered an excess contribution. If you fall into the category, be sure to withdraw the current year’s distribution before implementing the rollover.

Choosing the right rollover option is important. Remember to consult your financial adviser to help select the right option for you.

Anthony Engrassia is an investment adviser representative of Mutual for Omaha Investor Services.