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Common 401(k) Rollover Errors Target Employees Should Avoid

'Target employees often face complex rollover decisions that can affect their retirement outcomes. To help avoid unnecessary taxes or penalties, it's important to understand rules like the 60-day window, the Rule of 55, and NUA strategies before moving assets.' — Wesley Boudreaux, a representative of The Retirement Group, a division of Wealth Enhancement.

'Target employees transitioning from their company plans need to understand rollover details such as timing, tax treatment, and NUA opportunities to help preserve long-term retirement value.' — Patrick Ray, a representative of The Retirement Group, a division of Wealth Enhancement.

In this article, we will discuss:

Common rollover mistakes that can trigger taxes and penalties.
Special rules like the “Rule of 55” that can help early retirees.
How Target employees who own company stock can realize tax advantages through Net Unrealized Appreciation (NUA).

By Brent Wolf, CFP®, Wealth Enhancement

Transferring retirement savings from a 401(k) to an IRA can offer greater investment flexibility and control, but missteps during this process could lead to unnecessary taxes, penalties, or lost opportunities for growth. Thoughtful planning and awareness of the rules can help Target employees steer clear of these costly mistakes.

1. Missing the 60-Day Rollover Window

When leaving a company like Target, you may decide to move your 401(k) into an individual retirement account (IRA). There are two ways to move your funds: through a direct transfer or a 60-day rollover.

With a direct transfer, your 401(k) provider sends the funds directly to your IRA with no tax withheld. However, if you receive a check instead, you must deposit that amount into your IRA within 60 days. Missing that deadline can result in taxes being due and, if you’re under age 59½, a 10% early withdrawal penalty.

Additionally, your plan administrator may withhold up to 20% for federal taxes. For example, if you’re rolling over $10,000, you might receive only $8,000. To avoid tax on the withheld portion, you must deposit the full $10,000 into your IRA within 60 days—using other funds to cover the $2,000 difference until you’re refunded at tax time.

2. Overlooking the Rule of 55

Employees who leave Target during or after the year they turn 55 may be able to use the “Rule of 55” to withdraw money from their 401(k) without the 10% early-withdrawal penalty (although ordinary income tax still applies).

This exception applies only to the 401(k) tied to the employer you just left—not to IRAs. If you roll your 401(k) into an IRA, that benefit is forfeited and the standard age-59½ rule applies. For public safety workers, the qualifying age may be as early as 50.

3. Missing Out on Target Stock Tax Advantages

If you hold Target company stock inside your 401(k), you may be able to use the Net Unrealized Appreciation (NUA) strategy. With NUA you move company stock directly from your 401(k) into a taxable brokerage account, paying ordinary income tax on the original cost basis only. The appreciated portion is then subject to long-term capital gains tax when sold—typically a lower rate.

For example, if your company stock cost basis was $300,000 and it has grown to $3 million, only $300,000 is taxed as ordinary income when distributed; the $2.7 million in growth is taxed later at long-term capital gains rates.

However, if you roll that stock into an IRA through a direct rollover, you lose the NUA benefit—all future withdrawals would be taxed as ordinary income.

Plan Thoughtfully and Seek Guidance

Even seasoned investors can miss key details of a 401(k) rollover. Target employees nearing retirement may benefit from professional guidance to navigate complex tax rules, refine rollover strategies, and make informed decisions about their pension and savings.

The Retirement Group helps corporate professionals address retirement transitions and rollovers. To discuss your options, call (800) 900-5867 to speak with an advisor familiar with Target benefits and retirement programs.

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Sources:

1. Adams, Hayden. “When Can You Withdraw? 401(k)s and the Rule of 55.” Charles Schwab , 1 Apr. 2025, www.schwab.com/learn/story/retiring-early-5-key-points-about-rule-55 . Accessed 17 Nov. 2025.
2. Ellis, Donna. “401(k) Rollover Rules: How to Avoid Costly Mistakes.” Creative Planning , 5 Nov. 2025, creativeplanning.com/insights/financial-planning/401k-rollover-rules-avoid-costly-mistakes/. Accessed 17 Nov. 2025.
3. Hayes, Adam, Ph.D., CFA. “Net Unrealized Appreciation (NUA): Definition and Tax Treatment.” Investopedia , 14 May 2025, www.investopedia.com/terms/n/netunrealizedappreciation.asp . Accessed 17 Nov. 2025.

What are the key benefits provided by Target Corporation's Personal Pension Account and Traditional Plan for employees approaching retirement, and how do these plans ensure financial security during retirement years? Understanding the synergy between these two plans is essential for retirees, as they work together alongside Social Security and personal savings to replace a portion of an employee's paycheck after retirement.

Key Benefits of the Personal Pension Account and Traditional Plan: Target Corporation's pension plan includes two components: the Personal Pension Account and the Traditional Plan. These plans work in tandem to replace a portion of an employee's paycheck during retirement. The Personal Pension Account provides pay credits and interest that accumulate over time, while the Traditional Plan uses a final average pay formula. Together with Social Security and personal savings, these plans help ensure financial security in retirement(Target Corporation_Dece…).

How can employees elect different payment options, such as the Single Life Annuity or the Joint and Survivor Annuities, within Target Corporation's pension plans? It is crucial for employees to grasp not only the financial implications of these choices but also the necessary spousal consent required when designating a joint annuitant, particularly if the chosen joint annuitant is not the employee's spouse.

Payment Options and Spousal Consent: Employees can elect different payment options, including the Single Life Annuity, which provides the highest monthly benefit and ceases at the retiree’s death, or the Joint and Survivor Annuity, which continues payments to a surviving spouse. To elect a non-spouse as a joint annuitant, spousal consent is required, and this must be notarized to ensure compliance with plan rules(Target Corporation_Dece…).

In what circumstances might benefits not be paid under the Traditional Plan, and what steps can employees take to ensure they remain eligible for their pension benefits upon termination of employment? Target Corporation's policy outlines several scenarios where benefits could be denied, making it necessary for employees to be proactive in understanding their rights and responsibilities concerning plan participation.

Circumstances for Denial of Benefits under the Traditional Plan: Benefits under the Traditional Plan may not be paid if an employee leaves before becoming vested (less than three years of service). Employees should ensure they meet the vesting requirements and maintain eligibility by avoiding termination before they reach the minimum service period(Target Corporation_Dece…).

What procedures should employees follow to report changes in marital status, address, or beneficiaries to ensure compliance with the requirements of Target Corporation's pension plan? Employees must understand the importance of timely reporting these changes to avoid potential issues with their retirement benefits and ensure that their pension plan information remains up-to-date.

Reporting Changes in Marital Status or Beneficiaries: Employees must promptly report changes in marital status, address, or beneficiaries to Target's Benefits Center to ensure their pension records remain up-to-date. Failing to do so can lead to delays or issues in processing pension benefits(Target Corporation_Dece…).

How does Target Corporation determine the final average pay used to calculate retirement benefits under its pension plans, and what factors may affect this calculation? Employees nearing retirement should be fully informed about how their compensation is considered in determining their pension benefits, including aspects such as bonuses and overtime that may influence their final average pay calculation.

Final Average Pay Calculation: Target Corporation calculates final average pay based on the five highest years of earnings out of the last 10 years of service. This includes regular pay, overtime, bonuses, and commissions but excludes items like workers' compensation or long-term disability payments(Target Corporation_Dece…).

How can employees begin the process of rolling over their Target 401(k) accounts into the Pension Plan, and what advantages does this Pension Purchase Program offer? Understanding this rollover option is vital for maximizing retirement benefits, as it can provide employees with a stable income stream while avoiding unnecessary fees typically associated with purchasing annuities outside the plan.

Rolling Over 401(k) into the Pension Plan: Employees can roll over their 401(k) accounts into the Pension Plan using the Pension Purchase Program. This option offers several advantages, including avoiding fees associated with purchasing annuities outside the plan and receiving a stable income stream during retirement(Target Corporation_Dece…).

What are the implications of a participant's age and joint annuitant's age on the payment amounts under the various Joint and Survivor Annuity options at Target Corporation? Employees should be aware of how age differences can impact their pension payouts, as the specific percentages payable under these options may vary based on the ages of both the participant and their designated joint annuitant.

Effect of Participant and Joint Annuitant’s Age on Payments: The Joint and Survivor Annuity options are influenced by the ages of both the participant and the joint annuitant. The younger the joint annuitant, the lower the monthly payout due to actuarial adjustments. Employees should consider these factors when selecting an annuity option(Target Corporation_Dece…).

How are retirement benefits managed during potential plan terminations or amendments at Target Corporation, and what protections are in place for employees in these scenarios? Employees should be well-informed regarding their rights in the event of changes to the pension plan, including how benefits would be distributed and under what circumstances they may remain fully vested.

Plan Terminations or Amendments: In case of plan terminations or amendments, vested benefits are protected, and employees will receive their earned pension. If the plan is amended or terminated, Target ensures that vested benefits are distributed according to the plan's terms(Target Corporation_Dece…).

For employees retiring or leaving Target Corporation, what options are available with respect to unused vacation time and how might this be factored into pension calculations? Understanding how accrued time off translates into benefits could have a significant impact on an employee's financial positioning upon retirement.

Unused Vacation Time and Pension Calculations: Unused vacation time does not directly affect pension benefits but can be included in eligible earnings calculations that determine final average pay. Employees nearing retirement should consult with Target’s Benefits Center to understand how unused time may impact their overall benefits(Target Corporation_Dece…).

How can employees contact Target Corporation for assistance with their retirement benefits to address any questions or concerns they may have about their pension plans? Accessing the right resources and support is essential for employees to navigate their retirement benefits effectively. They can reach out to the Target Benefits Center at 800-828-5850 for more specific inquiries related to their personal circumstances. These questions aim to enhance employees' understanding of their retirement benefits, ensuring they are well-prepared for their transition into retirement.

Contacting Target for Pension Assistance: Employees can contact the Target Benefits Center at 800-828-5850 for assistance with their retirement and pension plans. This center provides support with any questions related to pension options, payments, and administrative requirements(Target Corporation_Dece…).

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For more information you can reach the plan administrator for Target at 10 South Dearborn Street 48th Floor Chicago, IL 60603; or by calling them at 1-800-440-0680.