How to Roll Over Your 401(k)
When you leave a job, you have several options for your 401(k). Rolling it over to an IRA or new employer plan can help you maintain tax-advantaged growth and gain more control over your investments.
Your Options When Leaving a Job
Direct Rollover to IRA
Most popular. Funds transfer directly - no taxes or penalties. More investment options than most 401(k) plans.
Roll to New Employer Plan
If your new employer accepts rollovers. Keeps Rule of 55 eligibility. May have better institutional pricing.
Leave in Current Plan
If balance exceeds $7,000. No action needed. Keeps Rule of 55 eligibility for that plan.
Cash Out (Avoid)
Subject to income tax + 10% penalty if under 59½. You also lose years of tax-advantaged compound growth.
Direct vs Indirect Rollover
| Feature | Direct Rollover | Indirect (60-Day) Rollover |
|---|---|---|
| Tax Withholding | None | 20% mandatory withholding |
| Deadline | No deadline | Must complete within 60 days |
| Risk | Very low | Higher (must replace withheld 20%) |
| Frequency | Unlimited | Once per 12 months |
Step-by-Step Rollover Process
- Open an IRA at your preferred provider (Fidelity, Vanguard, Schwab, etc.)
- Contact your old 401(k) plan administrator
- Request a direct rollover (check payable to new custodian)
- Specify Traditional IRA (for pre-tax) or Roth IRA (for Roth 401k funds)
- Invest the funds once they arrive in your IRA
Frequently Asked Questions
A direct rollover from Traditional 401(k) to Traditional IRA is not taxable. Rolling Traditional 401(k) to Roth IRA triggers income tax on the converted amount. Roth 401(k) to Roth IRA is tax-free.
Direct rollovers typically take 3-10 business days. Some plan administrators mail a check, which adds mailing time. Electronic transfers are fastest. An indirect rollover must be completed within 60 days.