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A 401(k) to IRA rollover is a fairly straightforward process but can take up to a couple of weeks to complete. Before you start the rollover process, review the different tax implications and pros and cons of moving from one retirement account type to another.
4 steps to roll over a 401(k) to an IRA
To roll over your 401(k) to an IRA, you must choose an IRA account type and provider and initiate the rollover process with your old 401(k) provider. Here’s what each step entails.
1. Choose a rollover IRA account type
When choosing an IRA type, note any potential tax implications. For instance, if you roll over your traditional 401(k) to a Roth IRA, you’ll have to pay income taxes the year you roll over the money. This is because a Roth IRA is a post-tax account in which you pay taxes on the money before you contribute versus when you begin taking withdrawals in retirement. The benefit is that when you withdraw the money in retirement, you won’t have to pay taxes on the qualified distributions
However, if you have a Roth 401(k) and roll your funds to a Roth IRA, you may not have to worry about paying any additional tax unless you have pre-tax employer contributions you’re rolling over.
Moving funds from a traditional 401(k) to a traditional IRA is not considered a taxable event if you complete the rollover within 60 days, according to IRS rules.
2. Compare and select an IRA provider
Not all IRA providers are designed alike — things like fees, investment options and other features and amenities differ from one bank or broker to the next. Whereas one broker may let you invest in a wide variety of assets, another may limit you to stocks and exchange-traded funds (ETFs).
Also, consider your investing approach as you compare providers. If you prefer to be hands-off, consider an IRA provider that offers automated investing using a robo-advisor.
3. Contact your old 401(k) provider and request a rollover
The actual transfer of 401(k) funds can take up to a couple of weeks, depending on the provider. Usually, you can select a direct rollover option, where funds are transferred from your old employer’s 401(k) provider to your new IRA provider. An indirect rollover is when you receive a check for your distribution and have to deposit the money with your IRA provider.
The advantage of a direct rollover is that it’s simpler and avoids potential tax implications. If you choose an indirect rollover and fail to deposit the money within 60 days, the money is subject to taxes and an early withdrawal penalty if you’re younger than 59.5 years old. Some 401(k) plan administrators automatically issue a check if your balance is below $1,000. This money incurs a 20% income tax withholding, and you’ll need to deposit the funds into an IRA within 60 days to avoid any early withdrawal penalties.
4. Deposit the money
If you choose a direct rollover option, your 401(k) plan administrator automatically deposits your money with your new IRA provider. If you choose an indirect rollover, deposit the money within 60 days to avoid taxes and penalties.
5. Invest your funds
Depositing or transferring funds into your IRA doesn’t mean these funds are invested. Unless you choose an IRA that offers managed portfolios, you’ll need to choose your own investments. If you’re unsure how to start investing, consider your time horizon, risk tolerance and investing goals when deciding which investments are right for you.
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Advantages and disadvantages of rolling over a 401(k) to an IRA
Rolling over a 401(k) to an IRA has different advantages and disadvantages.
Advantages
More investment variety. IRAs account providers usually offer stocks, bonds, ETFs, mutual funds and more, while 401(k)s typically include mostly mutual funds.
No employer restriction. Contribute to your IRA regardless of employment status.
Education exception. Education expenses are only a valid exception to the additional 10% tax for IRA distributions, not 401(k) distributions.(1)
Disadvantages
No loan options. Unlike 401(k)s, you cannot take a loan out with IRAs.(2)
Limited creditor protection. While 401(k)s are protected from creditors as a result of the ERISA law, IRA laws and the level of protection differ state by state.
Smaller contribution limits. Contribute up to $24,500 to your 401(k) in 2026 but only $7,500 to your IRA.
Is it a good idea to rollover 401(k) to IRA?
At the end of the day, transferring funds from your 401(k) to an IRA can be helpful if you wish to have more investment choices and potentially lower fees. If you find that your 401(k)’s creditor protections, loan options and investment choices align more with your goals, you may want to hold off.
It’s worth noting that your rollover does not affect your total IRA contribution amounts. For example, the IRA contribution limit is $7,500 and another $1,100 if you’re age 50 and older. If you roll over a $5,000 401(k) balance to your IRA, it won’t count toward your contribution limit.
Bottom line
A 401(k) rollover to an IRA is a straightforward process. But because of potential tax implications, it’s a good idea to roll your 401(k) over to an IRA of the same type. Review the best IRAs and best Roth IRAs to see which IRA provider is right for you.
Frequently asked questions
Yes, you can roll over a 401(k) into an IRA without penalties if you complete the rollover within 60 days.
Yes, you can roll over a 401(k) to an IRA tax-free. If you transfer funds from a traditional 401(k) to a traditional IRA, you will not have to pay taxes again.
The easiest way to roll over a 401(k) into an IRA is through a direct rollover, where your old 401(k) provider transfers your funds directly to your IRA.
You need to check with your new 401(k) provider to see if they will accept your old 401(k). If they do, initiate the 401(k) rollover with your old provider.
Dhara Singh was a freelance personal finance writer at Finder specializing in loans. Formerly she was a top 10 journalist at Yahoo Finance with more than 38+ million content views where she covered retirement and mortgages. She has also written for Bankrate, and CNET and continues to write for a variety of outlets, such as Investopedia and Worth magazine. Her articles focus on equipping readers with the right information and data so they can make the most informed decisions related to their finances.
Dhara previously worked as an insights analyst for Finder’s PR team, where she started the Deadliest Cities to Drive series in 2018, connecting interesting data analysis to a suite of car insurance products. When she’s not writing, Dhara coaches small business owners through her Stories to Sales programs and empowers them to use their life experiences to help other people. She has also self-published a poetry book on Amazon called Tell her She’s Lovely.
Dhara holds a B.S. in Finance and Supply Chain Management from Rutgers University and a M.S. in Journalism from Columbia University.
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A retirement plan for self-employed individuals but may come with high administrative fees.
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