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

Yes, you can roll a 401(k) into an IRA, but the rules depend on whether your plan allows it and what type of IRA you choose

A rollover moves money from your 401(k) directly to an Individual Retirement Account (IRA) without triggering taxes or penalties, as long as you follow the IRS rules. Most 401(k) plans allow rollovers, but not all do — your plan documents will say whether yours does. You can roll into a traditional IRA (which holds pre-tax money) or a Roth IRA (which holds after-tax money), but the type of rollover you do determines the tax outcome.

The key difference from other moves: a rollover is not a withdrawal. The money goes from your 401(k) custodian directly to your IRA custodian, or you receive a check made out to the IRA (not to you personally). This direct path is what keeps the IRS from treating it as income in the year you move it.

Key Takeaways

A direct rollover — where your 401(k) custodian sends money straight to your IRA custodian — avoids taxes and the 60-day important date that applies to indirect rollovers.
Rolling a traditional 401(k) into a traditional IRA keeps the money pre-tax; rolling into a Roth IRA triggers taxes on the amount you convert that year.
You can roll over a 401(k) while still employed at the company if your plan allows "in-service" rollovers, or after you leave your job.
IRAs have lower contribution limits than 401(k)s but often offer more investment choices and lower fees.
If you have a Roth 401(k), rolling it into a Roth IRA keeps the after-tax status; rolling into a traditional IRA converts it to pre-tax money and triggers taxes.

Direct rollover versus indirect rollover: which path avoids the tax trap

A direct rollover is the simpler route. You contact your 401(k) plan administrator and ask them to send the money directly to the IRA custodian you choose (Fidelity, Vanguard, Charles Schwab, or another provider). The check is made out to the IRA in your name, not to you personally. The money never touches your hands, and there is no tax bill or 60-day clock.

An indirect rollover means your 401(k) plan sends you a check for the balance. You then deposit it into an IRA within 60 calendar days. This route carries risk: if you miss the 60-day window, the IRS treats the money as a withdrawal, which means income tax plus a 10% penalty if you are under 59½. Some plans also withhold 20% of the amount for federal taxes when they send you the check, even though you may get that money back later when you file your taxes. Because of these complications, a direct rollover is almost always the better choice.

You can do only one indirect rollover per IRA per 12-month period (this rule applies across all your IRAs combined, not per account). Direct rollovers have no limit.

Rolling a traditional 401(k) into a traditional IRA versus a Roth IRA

If your 401(k) holds pre-tax money (the most common type), rolling it into a traditional IRA keeps that money pre-tax. No taxes are due in the year of the rollover. The money grows tax-deferred, and you pay income tax on withdrawals in retirement.

Rolling that same pre-tax 401(k) money into a Roth IRA is a conversion. The IRS treats the full amount you convert as taxable income in that year. If you roll $50,000 from a traditional 401(k) into a Roth IRA, you owe income tax on $50,000 in the year you do it. After that, the money grows tax-free and you can withdraw it tax-free in retirement. Some people choose this route if they expect to be in a higher tax bracket later, or if they want tax-free growth going forward, but the upfront tax bill can be substantial.

There is no income limit on rolling a traditional 401(k) into a Roth IRA, even though there are income limits on contributing directly to a Roth IRA. This is one reason people use rollovers to fund Roth accounts.

Rolling a Roth 401(k) into an IRA: keeping the after-tax status or converting

If your 401(k) is a Roth 401(k) (after-tax contributions), you can roll it into a Roth IRA to keep the after-tax status. The money continues to grow tax-free, and withdrawals remain tax-free. No taxes are due in the year of the rollover.

You can also roll a Roth 401(k) into a traditional IRA, but this converts the after-tax money to pre-tax status. The IRS will tax you on the earnings portion of the rollover in the year you do it (though not on the contributions themselves, since you already paid tax on those). This is rarely chosen because it defeats the purpose of having after-tax money.

When you can roll over: while employed or after leaving your job

Most people roll over a 401(k) after they leave their job. Once you are no longer employed by the company, you can roll the balance into an IRA at any time — there is no important date, though the longer you wait, the longer the money sits in a 401(k) that may have higher fees or fewer investment choices.

Some 401(k) plans allow in-service rollovers, which means you can move money to an IRA while you are still working at the company. This is less common and depends entirely on what your plan document says. If your plan allows it, you can roll over part or all of your balance without leaving your job. Ask your plan administrator whether in-service rollovers are permitted.

What happens to employer matching and vesting

You can roll over only money that is fully vested — meaning it belongs to you. If your employer match has not vested yet, you cannot roll it over; it stays in the 401(k) until it vests or you leave the company. Once you leave, any unvested balance is forfeited back to the plan.

Employer contributions that are already vested can be rolled over along with your own contributions. There is no separate process for them — the entire vested balance moves together.

IRAs versus 401(k)s: why people roll over

An IRA often has lower fees than a 401(k), especially if your 401(k) plan is expensive. IRAs also typically offer a wider range of investments — you can buy individual stocks, bonds, mutual funds, and exchange-traded funds, whereas a 401(k) usually limits you to a menu of mutual funds chosen by your employer.

However, IRAs have lower annual contribution limits than 401(k)s. For 2024, you can contribute $7,000 to an IRA (or $8,000 if you are 50 or older), while a 401(k) allows $23,500 (or $31,000 if you are 50 or older). If you are still working and want to save more than the IRA limit, you would need to keep money in your 401(k) or contribute to both.

IRAs also have different withdrawal rules. You can withdraw from an IRA penalty-free before 59½ under certain circumstances (like a first-time home purchase up to $10,000, or substantially equal periodic payments). A 401(k) allows penalty-free withdrawals at 55 if you leave your job that year, which is earlier than the IRA rule of 59½.

The steps to roll over your 401(k)

First, decide where you want the money to go: a new IRA at a custodian you choose, or an existing IRA you already have. Open the IRA if you do not have one yet. You will need to provide your Social Security number and basic information to the custodian.

Next, contact your 401(k) plan administrator (usually through your company's benefits office or the plan's website) and ask for a direct rollover form. Tell them the name of the IRA custodian, the account number, and the custodian's routing information. The plan will send the money directly to that account.

The transfer usually takes one to two weeks. Once the money arrives in your IRA, you can invest it according to the IRA custodian's options. Keep records of the rollover for your taxes — you should receive a Form 1099-R from your 401(k) plan showing the rollover amount.

Frequently Asked Questions

Do I owe taxes when I roll a 401(k) into a traditional IRA?

No, as long as you do a direct rollover. The money moves from your 401(k) custodian to your IRA custodian without being treated as income. You will owe taxes later when you withdraw the money in retirement. An indirect rollover also avoids taxes if you deposit the check into an IRA within 60 days, but if you miss that important date, the full amount becomes taxable income plus a 10% penalty if you are under 59½.

What if I roll into a Roth IRA instead of a traditional IRA?

Rolling pre-tax 401(k) money into a Roth IRA is a conversion, and you owe income tax on the full amount in the year you do it. If you roll $50,000, you add $50,000 to your taxable income that year. After that, the money grows tax-free and withdrawals are tax-free. This makes sense for some people but creates a large tax bill upfront.

Can I roll over only part of my 401(k)?

Yes. You can roll over some of the balance and leave the rest in the 401(k), or roll over some and take some as a distribution. If you take money as a distribution (not a rollover), it is taxable income and subject to a 10% penalty if you are under 59½. A partial rollover is common when someone wants to keep a portion in the 401(k) for investment or loan options.

What if my 401(k) plan does not allow rollovers?

Some plans restrict rollovers, though this is uncommon. If your plan does not allow them, you cannot move the money to an IRA while you are employed. Once you leave the company, you can usually roll it over then. Check your plan documents or ask your benefits administrator whether rollovers are permitted.

How long does a rollover take?

A direct rollover typically takes one to two weeks from the time your 401(k) plan sends the money. An indirect rollover (where you receive a check) can take a few business days to arrive, and then you have 60 calendar days to deposit it into an IRA. It is wise to deposit it within a week or two to avoid accidentally missing the important date.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.