Rolling Your 401(k) Into an IRA: What You Need to Know

Yes, you can roll a 401(k) into an IRA, but the rules depend on whether you still work for the company and which type of IRA you choose

A rollover moves money from your 401(k) directly to an IRA without triggering taxes or penalties, as long as you follow the IRS rules. You can roll over a 401(k) into a traditional IRA or a Roth IRA, but each path has different tax consequences. The timing and method matter: a direct rollover (employer to IRA) is simpler than an indirect rollover (money to you first, then to the IRA), and you have only 60 days to complete an indirect rollover before it becomes a taxable distribution.

Whether you can roll over depends partly on your employment status. If you've left the company, you can roll over at any time. If you still work there, most plans don't allow rollovers until you reach 59½, separate from service, or meet another plan-specific condition — though some plans are more flexible. Check your plan documents or call your plan administrator to confirm what your employer's 401(k) allows.

Key Takeaways

A direct rollover from your 401(k) plan to an IRA avoids taxes and the 60-day important date that applies to indirect rollovers.
Rolling into a traditional IRA preserves the pre-tax nature of your 401(k) money, while rolling into a Roth IRA means paying income tax on the amount converted.
If you still work for the company, your plan may not allow rollovers until you leave, reach 59½, or meet another condition spelled out in the plan.
An indirect rollover gives you 60 days to deposit the money into an IRA; if you miss that important date, the distribution becomes taxable income and may trigger a 10% penalty if you're under 59½.

Direct rollover versus indirect rollover

A direct rollover is the simpler route. You contact your 401(k) plan administrator and request that they send the money directly to the IRA custodian (the bank or brokerage holding your new IRA). The money never touches your hands. The IRS does not count this as a distribution, so there's no withholding, no tax bill, and no 60-day important date to worry about.

An indirect rollover means the plan sends the check to you. The plan is required to withhold 20% for federal income tax, so if your balance is $100,000, you receive $80,000 and the plan sends $20,000 to the IRS. You then have 60 days to deposit the full $100,000 into an IRA — but you only have $80,000 in hand. If you deposit only what you received, the $20,000 withheld is treated as a distribution and becomes taxable income. You can make up the difference from other funds, but many people don't realize this until tax time. If you miss the 60-day important date entirely, the entire amount becomes taxable, and if you're under 59½, you also owe a 10% early withdrawal penalty.

The IRS allows one indirect rollover per 12-month period across all your IRAs, though direct rollovers have no limit. If you have multiple IRAs or 401(k)s, mixing indirect and direct rollovers in the same year can create complications, so direct is almost always the better choice.

Rolling into a traditional IRA versus a Roth IRA

Rolling your 401(k) into a traditional IRA is the most common path. Your 401(k) money was likely contributed pre-tax (reducing your taxable income when you earned it), and a traditional IRA is also pre-tax. The rollover itself is not a taxable event — you move the money without owing tax on it. When you withdraw from the traditional IRA in retirement, those withdrawals are taxed as ordinary income.

Rolling into a Roth IRA is a conversion, not a straightforward rollover. The money moves to the Roth, but you owe income tax on the full amount in the year you convert. If you roll $100,000 from a 401(k) into a Roth, you add $100,000 to your taxable income that year. The advantage is that once the tax is paid, the money grows tax-free and you can withdraw it tax-free in retirement. There is no income limit that prevents you from converting a 401(k) to a Roth, though there are income limits for direct Roth contributions. You also cannot undo a Roth conversion after 2017 (the rules changed), so this is a permanent decision.

Some people convert a 401(k) to a Roth in a year when their income is lower than usual, or when they're newly retired and haven't yet started Social Security. Others keep the money in a traditional IRA to avoid a large tax bill. The choice depends on your current tax bracket, how long you expect to hold the money, and whether you expect to be in a higher or lower tax bracket in retirement.

Rollover rules if you still work for the company

If you're still employed and your 401(k) is with your current employer, you may not be able to roll it over yet. The plan document sets the rules. Most plans allow rollovers only after you separate from service (leave the job), but some allow rollovers once you reach 59½ while still employed. A few plans allow in-service rollovers at any time, though this is less common.

Contact your plan administrator or check the summary plan description (a document your employer must provide) to learn what your specific plan allows. If your plan doesn't permit rollovers now, you can still roll over once you leave the company. If you're planning to leave soon, it may be worth waiting until after your last day to start the rollover process, since you won't have to negotiate with your current employer's plan administrator.

What happens to employer stock and company match

If your 401(k) holds employer stock (shares of the company you work for), rolling it into an IRA converts it to cash at the time of the rollover. You cannot hold employer stock directly in an IRA. Some people with large positions in company stock explore other options, like rolling the stock into a taxable brokerage account instead, but that's a separate transaction and may have tax consequences — consult a tax professional if this applies to you.

Employer matching contributions are already in your 401(k) balance and roll over with everything else. There's nothing special about them; they're part of your vested balance and move to the IRA along with your own contributions.

Loans and outstanding balances

If you have an outstanding loan from your 401(k), you cannot roll over the plan while the loan is active. You must repay the loan first. If you leave the company with an unpaid loan, the plan typically requires you to repay it within a short window (often 60 to 90 days) or the loan is treated as a distribution, triggering taxes and potentially a 10% penalty if you're under 59½.

Once the loan is repaid, the remaining balance in your 401(k) can be rolled over. If you're considering leaving your job and have a 401(k) loan, factor in the repayment important date before you give notice.

Timing and the 60-day rule for indirect rollovers

If you use a direct rollover, there's no important date — the money goes straight from the plan to the IRA. If you receive a check (indirect rollover), the clock starts the day you receive it. You have 60 calendar days to deposit the full amount into an IRA. Weekends and holidays count toward the 60 days, so mark your calendar.

If you deposit the money late, even by one day, the IRS treats it as a failed rollover. The amount becomes a taxable distribution, and if you're under 59½, you owe a 10% early withdrawal penalty on top of income tax. The IRS can grant a waiver for missed important date in cases of significant hardship, but you must request it in writing and the approval is not may provide. Direct rollover avoids this risk entirely.

Frequently Asked Questions

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

No, if you roll into a traditional IRA — the money moves without triggering a tax bill. If you roll into a Roth IRA, you owe income tax on the full amount converted in that tax year. A direct rollover to either type of IRA is not a taxable event itself; only a Roth conversion creates a tax liability.

What if I miss the 60-day important date on an indirect rollover?

The amount becomes a taxable distribution. You owe income tax on it, and if you're under 59½, you also owe a 10% early withdrawal penalty. The IRS can grant a waiver for significant hardship, but you must request it in writing. Direct rollovers have no important date, so this risk doesn't explore.

Can I roll over a 401(k) while I'm still working?

It depends on your plan. Most plans allow rollovers only after you leave the company, but some allow them once you reach 59½ while still employed. Check your plan's summary plan description or call your plan administrator to find out what your employer's 401(k) permits.

What happens to my employer match when I roll over?

The match is already part of your 401(k) balance and rolls over with everything else. There's nothing special about it — it moves to the IRA along with your own contributions.

Can I roll over a 401(k) if I have an outstanding loan?

No. You must repay the loan first. If you leave your job with an unpaid loan, the plan typically gives you 60 to 90 days to repay it, or the loan is treated as a distribution and becomes taxable. Once repaid, the remaining balance can be rolled over.

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.