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Moving Money From Your 401(k) to an IRA: What You Need to Know

By Felix Thorpe · Retirement Accounts Writer

Yes, you can transfer your 401(k) to an IRA, and it's one of the most common moves people make with retirement savings

A 401(k) rollover lets you move money from your employer's plan into an Individual Retirement Account (IRA) that you control. The transfer itself is not a taxable event if you do it correctly—the money moves directly from one account to another without you touching it. This matters because if you withdraw the money yourself and miss the 60-day deadline to deposit it elsewhere, the IRS treats it as a distribution, and you'll owe income tax plus a 10% penalty if you're under 59½.

The main reason people roll over is control: an IRA typically offers more investment choices than a 401(k), lower fees, and simpler beneficiary rules. You might also roll over because you've left your job, your employer plan is closing, or you want to consolidate multiple old 401(k)s in one place.

Key Takeaways

  • A direct rollover—where your 401(k) custodian sends money straight to your IRA custodian—avoids taxes and penalties entirely.
  • If you take the money yourself, you have 60 days to deposit it into an IRA or you'll owe income tax on the full amount plus a 10% early withdrawal penalty if you're under 59½.
  • You can roll over a traditional 401(k) to a traditional IRA or a Roth 401(k) to a Roth IRA, but converting between traditional and Roth triggers immediate income tax on the converted amount.
  • Your 401(k) plan documents and the IRA custodian's rollover instructions will tell you exactly which forms to complete and where to send them.
  • Once the money lands in your IRA, you can invest it however you want within IRA rules, but you still cannot withdraw it before 59½ without penalty unless an exception applies.

Direct rollover versus indirect rollover: which path to take

A direct rollover is the safest route. You contact your 401(k) plan administrator (usually through your employer's benefits office or the plan's website) and request a direct rollover to an IRA. You name the IRA custodian—Fidelity, Vanguard, Schwab, your bank, or another institution—and provide the account number. The 401(k) custodian sends the check directly to the IRA custodian, made payable to the IRA in your name. You never see the money. There is no tax withholding, no 60-day clock, and no risk of missing a deadline.

An indirect rollover means the 401(k) custodian sends the check to you. The IRS then gives you 60 calendar days to deposit that money into an IRA. The catch: the custodian must withhold 20% for federal income tax, so if your balance is $100,000, you receive a check for $80,000. You still owe tax on the full $100,000, so you need to come up with the $20,000 from another source if you want to roll over the entire amount. If you deposit only the $80,000 you received, the $20,000 is treated as a distribution, and you'll owe tax on it plus a 10% penalty if you're under 59½. The 60-day window is strict—one day late and the IRS treats the money as a taxable withdrawal.

Direct rollover is simpler and safer. Use indirect rollover only if your plan does not offer direct rollover, which is rare.

Traditional 401(k) to traditional IRA: the straightforward move

Rolling a traditional 401(k) into a traditional IRA is the most common scenario and involves no tax consequences. Both accounts are funded with pre-tax dollars, and both have the same withdrawal restrictions—you cannot touch the money before 59½ without a 10% penalty, with narrow exceptions for hardship, disability, or death.

The process is the same whether you left your job or are still employed. Request a direct rollover from your 401(k) plan to a traditional IRA at the custodian of your choice. The money moves tax-free. Once it lands in the IRA, you can invest it in stocks, bonds, mutual funds, ETFs, or other securities that the IRA custodian allows. You are no longer bound by your employer's limited investment menu.

One detail: if you have any pre-tax money in IRAs already (from previous rollovers or contributions), the IRS has a rule called the pro-rata rule that affects Roth conversions later. This is not a problem for the rollover itself, but it matters if you ever want to convert part of your IRA to a Roth. The rule essentially says the IRS will tax conversions based on the ratio of pre-tax to after-tax money across all your IRAs combined, not just the account you are converting.

Roth 401(k) to Roth IRA: keeping after-tax money tax-free

If your employer offers a Roth 401(k) and you have been contributing to it, you can roll it into a Roth IRA. The money was already taxed when you contributed it, so the rollover itself is not a taxable event. The money continues to grow tax-free in the Roth IRA, and withdrawals after age 59½ are tax-free as long as the Roth account has been open for at least five years.

The five-year rule is per Roth account type, not per account. If you already have a Roth IRA that you opened in 2015, rolling a Roth 401(k) into it does not restart the clock. The five-year period applies to the earliest Roth account you opened, regardless of which Roth account you withdraw from.

Use a direct rollover from your Roth 401(k) to your Roth IRA. The process is identical to a traditional rollover, except both accounts are Roth.

Converting a traditional 401(k) to a Roth IRA: the tax bill

You can roll a traditional 401(k) directly into a Roth IRA, but this is a Roth conversion, not a simple rollover. The IRS treats it as a taxable event. You owe income tax on the full amount you convert in the year you convert it, as if you had withdrawn the money and kept it.

For example, if you roll $100,000 from a traditional 401(k) into a Roth IRA, you owe income tax on $100,000 in that tax year. If your tax bracket is 24%, you owe $24,000 in federal tax. You must pay this tax from another source—the IRA itself cannot pay it. After you pay the tax, the $100,000 sits in the Roth IRA and grows tax-free forever.

Conversions make sense if you expect to be in a lower tax bracket now than in retirement, or if you want to move money into a Roth before your income rises. They do not make sense if the tax bill would be large and you cannot afford to pay it from outside the IRA. Some people convert in small amounts over several years to spread the tax bill across multiple years and stay in a lower bracket.

Steps to complete a direct rollover

The exact steps depend on your 401(k) plan and your IRA custodian, but the general order is:

  1. Open an IRA at your chosen custodian (Fidelity, Vanguard, Schwab, your bank, etc.) if you do not already have one. You will need your Social Security number and basic personal information. This takes a few minutes online or by phone.
  2. Contact your 401(k) plan administrator—usually through your employer's benefits office, the plan's website, or the phone number on your 401(k) statement—and request a direct rollover form. Some plans call it a "rollover request" or "distribution request." Ask for the direct rollover option, not an indirect rollover.
  3. Complete the form with your IRA custodian's name, address, and the IRA account number. The plan administrator will tell you where to send the form or whether you can submit it online.
  4. The 401(k) custodian will send the money directly to your IRA custodian. This usually takes one to two weeks, but can take longer if the plan processes requests monthly or if there are delays in the mail.
  5. Once the money arrives in your IRA, you can invest it. Log into your IRA account online or call the custodian to place trades.

Keep copies of the rollover form and any confirmation letters. If the money does not arrive within the expected timeframe, contact both custodians to track it down.

What happens to employer stock and company match in a rollover

If your 401(k) holds employer stock or company match contributions, both can be rolled over to an IRA. Employer stock does not receive special tax treatment in an IRA the way it does in a 401(k)—there is no "net unrealized appreciation" benefit—but rolling it over is still straightforward. The stock moves to your IRA at its current value, and you can sell it or hold it once it arrives.

Company match contributions are always yours once they vest, and they roll over like any other 401(k) money. If you are still employed and your company match has not fully vested, check your plan documents to see what happens to unvested money when you roll over. Some plans allow partial rollovers of vested money only.

Frequently Asked Questions

Can I roll over my 401(k) while I'm still working at the company?

It depends on your plan. Some plans allow "in-service rollovers" or "in-service distributions" while you are still employed, but many do not. Check your plan documents or ask your benefits administrator. If your plan does not allow it, you can usually roll over after you leave the job.

What if my 401(k) has a loan against it?

You cannot roll over the borrowed portion. You must repay the loan first, or it will be treated as a taxable distribution. Once the loan is repaid, you can roll over the remaining balance.

Do I have to roll over the entire 401(k) balance?

No. You can roll over part of it and leave the rest in the 401(k) plan, if the plan allows partial rollovers. However, if you take a partial distribution, the 20% withholding rule applies to the amount you withdraw, even if you intend to roll it over. A direct rollover avoids this withholding.

Can I roll over an old 401(k) from a previous employer?

Yes. Once you leave a job, you can roll over that 401(k) to an IRA at any time. There is no deadline, though the longer you wait, the longer the money sits in a plan you no longer control. Some old plans charge higher fees or offer limited investment choices, so rolling over is often a good idea.

What if I have multiple old 401(k)s from different employers?

You can roll each one into the same IRA or into separate IRAs. Most people consolidate into one IRA for simplicity, but there is no rule against keeping them separate. Rolling them all into one IRA makes it easier to track and manage your retirement savings.