Moving an old 401(k) without a tax surprise in an RSU year

Who needs help with a 401(k) rollover in a high-income RSU year?

Look at the table first. A $500,000 old 401(k) paid out by check arrives as $400,000, and what a shortfall costs depends on the year it lands in. In an ordinary year the gap is painful. In a year when RSUs push you into the top bracket, every missing dollar is taxed at 37%.

The example is Gwen and Sam (hypothetical), 52 and 53. She is a VP of sales at a software company that just went public, and he teaches high school and will have a state pension. Gwen has a $500,000 401(k) at a former employer, and about $2 million of her RSUs release this year. The table shows what four ways of moving that money would cost them.

Help with a 401(k) rollover covers the plan left behind after a job change, whether your current plan accepts roll-ins, and separating the pretax money from any Roth 401(k) money so each lands in the matching account. Before Kestrel Bay Retirement Advisors recommends where the money goes, it checks what each destination does to your taxes this year and later. That check includes the pro-rata rule that can spoil a backdoor Roth, plus the age-55 separation rule for penalty-free plan withdrawals.

One note for Sam. If he has a governmental 457(b), withdrawals after he separates from service carry no 10% additional tax at any age. Rolled into an IRA before 59½, that money would lose this access, so it usually stays put.

How the rollover fits your RSUs, your company stock and later Roth conversions

A $2 million RSU release puts Gwen and Sam well above the 2026 threshold for the 37% rate, $768,700 married filing jointly, so any rollover error costs them 37 cents on the dollar in federal tax. That is why we plan the rollover around the release, not after it. Our approach to equity compensation planning covers the vesting side of the same year.

If the old plan holds shares of a former employer, we check net unrealized appreciation before anything moves. Rolling those shares to an IRA can't be undone, and it's also worth avoiding new purchases of your current employer's stock inside the 401(k), since your paycheck and RSUs already depend on that company.

Roth conversions are the third piece. We wouldn't convert in the RSU year. The pretax money is better converted in lower-income years after Gwen stops working, well before required distributions begin at 75 for both of them. Investing involves risk, including loss of principal, and none of this guarantees a tax result.

What Kestrel Bay Retirement Advisors hands you after a rollover review

You leave the review with paper you can act on, not a general discussion. For Gwen and Sam it would look like this.

• A map of every retirement account in the household, with balance and source type: Gwen's old 401(k), her current plan, and Sam's 403(b) and state pension estimate.
• A written recommendation for each account (roll to an IRA, roll into the current plan, or leave it), with the tax reason for each.
• The exact payee wording for the check or transfer (receiving custodian FBO the account owner) and a list of the forms the old plan asks for, including spousal consent if that plan requires it.
• A tax note saying the January 1099-R should show code G for a direct rollover, a reminder that the custodian's Form 5498 confirms the deposit later, and a follow-up to check the money arrived and was invested, not left sitting in cash.

What can't a rollover fix?

A rollover doesn't lower your tax. Done right, it's tax-neutral, so it can't shrink the RSU year's bill. Nobody should sell it as a tax saver.

We can't speed up the old plan's processing either, and it often takes a few weeks. We also can't undo a missed 60-day deadline. Limited IRS relief exists for narrow reasons such as an institution's error, and nobody should plan around it.

Leaving the money where it is can be the better call. Low-cost institutional funds, federal creditor protection for workplace plans, and the rule of 55 all favor staying put. The rule of 55 only helps Gwen if she separates from her current employer in the calendar year she turns 55 or later. When the old plan charges little and you might leave work at 55 or older, a workplace plan can beat an IRA.

Our opinion, with the reason: we'd usually roll the old plan into the current 401(k) when the backdoor Roth matters. Any pretax IRA money still sitting there at year-end gets counted under the pro-rata rule and makes most of a backdoor conversion taxable.

Which 401(k) rollover mistakes cost the most in a big income year?

The costliest is accepting a check payable to yourself and redepositing only the 80% that arrived. Here is the arithmetic. The plan withholds $500,000 × 20% = $100,000, so Gwen gets $400,000 and redeposits that within 60 days. The missing $100,000 becomes income on top of RSU income already above the 37% threshold. At 37%, that $100,000 adds $37,000 of federal tax, plus a 10% additional tax at 52 of $10,000. The extra federal cost is $47,000. Had she added $100,000 from cash, it would have been $0.

The rule we give clients: in any year when RSU income puts you above that threshold, move retirement money only by direct rollover. Every dollar that misses the redeposit is taxed at 37%, plus 10% if you're under 59½ and no exception applies.

Three other mistakes show up often. People roll former-employer stock into an IRA without checking NUA, so the appreciation loses long-term capital gain treatment and is taxed as ordinary income when withdrawn. Others roll the current plan into an IRA right after leaving at 55 or older and give up penalty-free access under the rule of 55.

And some think the 20% withheld is gone. It isn't. It's credited against the year's tax, so the real cost is only the part not redeposited.

Requesting a rollover review from Kestrel Bay Retirement Advisors

There is no published phone number, so the way to reach us is the review request form on this website. We hold reviews by video or phone with clients across the country, and the minimum is $400K in investable assets. Kestrel Bay Retirement Advisors serves 2,600 clients and managed $910 million for them on 10/5/2026.

Bring the old plan's latest statement showing sources, the current plan's summary plan description (it states the roll-in rules) and your RSU release statements. We'll go through them with you in the first conversation, and we explain our fees in writing at that meeting.