How a 401(k)-to-IRA transfer works

A rollover moves money from your 401(k) directly to an IRA without you touching it. Your 401(k) plan administrator sends the funds to the IRA custodian (usually a bank or brokerage). This is the cleanest route because the IRS does not count it as a withdrawal, so you avoid taxes and the 10% early-withdrawal penalty if you are under 59½.

The alternative is a 60-day rollover, where the plan sends you a check. You then deposit it into an IRA within 60 days. This method is riskier: if you miss the deadline, the IRS treats it as a taxable withdrawal. You also owe taxes on the full amount immediately, even if you later deposit it into the IRA.

Most people use the direct transfer because it is simpler and safer. The whole process usually takes one to three weeks.

Key Takeaways

  • A direct rollover sends money straight from your 401(k) to an IRA without you handling it, and avoids taxes and penalties.
  • You need to open an IRA first, then contact your 401(k) plan administrator and request a rollover form.
  • The IRS allows you to roll over pre-tax money into a traditional IRA and after-tax money into a Roth IRA, but mixing them has tax consequences.
  • If you receive a check instead of a direct transfer, you have exactly 60 days to deposit it into an IRA or owe taxes on the full amount.
  • Some plans charge a fee to process the rollover, and you may owe taxes on employer match money if it was not vested.

Step 1: Choose an IRA custodian and open an account

Before you contact your 401(k) plan, you need a place for the money to go. An IRA custodian is a bank, brokerage, or credit union that holds the account. Common custodians include Fidelity, Vanguard, Charles Schwab, and your own bank.

Visit the custodian's website or call and say you want to open a traditional or Roth IRA (see the section below on which type). They will ask for your name, Social Security number, address, and employment information. The account opens within a few days, usually at no cost. Write down your new IRA account number — you will need it in the next step.

You do not need to fund the account yet. The rollover deposit will do that.

Step 2: Request a rollover form from your 401(k) plan

Contact your 401(k) plan administrator. This is usually the HR department at your current employer, or a third-party administrator if you left the job. Ask for a direct rollover form or rollover request form. Some plans call it a "distribution request."

You will need to provide the name and address of your new IRA custodian and your new IRA account number. The form asks whether you want a direct transfer (which you do) or a check mailed to you. Choose direct transfer.

Some plans process this in a few days. Others take two weeks. Ask when you should expect the money to arrive at your IRA.

Traditional IRA vs. Roth IRA: which one to roll into

A traditional IRA accepts pre-tax money from your 401(k). The money stays tax-deferred until you withdraw it in retirement. Use this if your 401(k) contributions were pre-tax (most are). You will see this on your 401(k) statement as "employee deferrals" or "pre-tax contributions."

A Roth IRA accepts after-tax money. You pay taxes now, but withdrawals in retirement are tax-free. Rolling pre-tax 401(k) money into a Roth means paying taxes on the full amount in the year of the rollover. This is called a Roth conversion and makes sense only if you expect to be in a lower tax bracket now than in retirement, or if you want tax-free growth going forward.

Most people roll pre-tax 401(k) money into a traditional IRA. If your 401(k) had a Roth option (a Roth 401(k)), you can roll that into a Roth IRA without triggering taxes.

What happens to employer match and vesting

Employer match money in your 401(k) is always pre-tax. When you roll it over, it goes into a traditional IRA along with your own contributions. You cannot separate it.

If you are not fully vested in the employer match, you forfeit the unvested portion. Vesting means you own the money. Most plans vest over three to five years. Check your 401(k) statement or ask HR what percentage you own. Only the vested portion rolls over.

Example: Your 401(k) balance is $50,000. You contributed $30,000, and the employer added $20,000 in match. But you are only 60% vested in the match, so you own $12,000 of it. You can roll over $42,000 (your $30,000 plus $12,000 of the match). The remaining $8,000 stays in the plan or is forfeited.

Fees and taxes to watch for

Some 401(k) plans charge a fee to process the rollover, usually $25 to $100. Ask your plan administrator before you request the form. This fee comes out of your account balance.

If you receive a check instead of a direct transfer, your plan will withhold 20% for federal taxes. This is automatic, even if you plan to deposit the full amount into an IRA within 60 days. To avoid owing taxes, you must deposit the full amount (including the 20% that was withheld) from your own pocket. You get the withheld amount back as a tax credit when you file your return.

Example: Your 401(k) balance is $100,000. The plan sends you a check for $80,000 (20% withheld). To complete a tax-free rollover, you must deposit the full $100,000 into an IRA within 60 days. You deposit the $80,000 check plus $20,000 from savings. When you file taxes, you claim the $20,000 as a credit.

What to do if you miss the 60-day deadline

If you received a check and did not deposit it into an IRA within 60 days, the IRS treats it as a taxable withdrawal. You owe income tax on the full amount, plus a 10% penalty if you are under 59½.

You can ask the IRS for a waiver if you had a good reason for the delay — serious illness, natural disaster, or error by the financial institution. File Form 8329 with your tax return and explain what happened. The IRS grants waivers sometimes, but not always.

The safest move is to use a direct transfer, which has no deadline.

Frequently Asked Questions

Can I roll over a 401(k) while I still work at the company?

Most plans do not allow it. You usually must wait until you leave the job, retire, turn 59½, or experience a hardship. Check your plan documents or ask HR. If your plan allows in-service rollovers, you can do it while employed.

What if I have multiple 401(k)s from past jobs?

You can roll each one into the same IRA or into separate IRAs. Rolling them into one IRA keeps things simple. Each rollover is a separate transaction, so you will need to contact each plan administrator.

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). However, if you leave the job, most plans require you to either roll over the balance or take a distribution. Ask your plan administrator what options you have.

Will rolling over my 401(k) affect my taxes this year?

A direct rollover does not trigger taxes. If you receive a check and complete the rollover within 60 days, there are no taxes either. Only if you miss the 60-day deadline or do a Roth conversion do you owe taxes in the year of the rollover.

Can I roll over a 401(k) loan?

No. If you have an outstanding loan from your 401(k), you must repay it before rolling over. If you leave the job without repaying, the loan is treated as a taxable withdrawal and you owe the 10% penalty if you are under 59½.