You can move a 401(k) to an IRA through a direct transfer or by rolling over the funds yourself

A 401(k) rollover moves money from your employer's retirement plan into an Individual Retirement Account (IRA) that you control. The most common reason to do this is leaving a job — your old employer's plan may charge fees you want to avoid, or you want to consolidate multiple 401(k)s in one place. You have two ways to move the money: a direct transfer (where the money goes straight from one institution to another) or an indirect rollover (where you receive a check and deposit it yourself within 60 days). A direct transfer is simpler and safer because the IRS doesn't count it as a taxable event if something goes wrong.

The process takes different amounts of time depending on which method you choose and how quickly your old plan administrator processes the request. A direct transfer typically takes one to two weeks. An indirect rollover can happen faster on your end, but you're responsible for depositing the check within the 60-day window, and if you miss that important date, the IRS treats the money as a distribution and you'll owe income tax on it.

Key Takeaways

  • A direct transfer sends money straight from your 401(k) to your new IRA without you handling the funds, and it avoids any risk of missing the 60-day important date.
  • An indirect rollover gives you a check to deposit yourself, but you must deposit it within 60 days or the IRS will tax it as income.
  • You can roll over a 401(k) from a previous employer at any time, but you cannot roll over a 401(k) from your current job unless you've left that employer or meet certain exceptions.
  • Your new IRA custodian (the bank or brokerage holding your account) can walk you through the paperwork and contact your old plan on your behalf.
  • If your 401(k) has company stock or employer matching contributions, those can be rolled over, but some plans have special rules about how to handle them.

The direct transfer method: letting the institutions handle it

A direct transfer is the safest route because the money never touches your hands. You contact the financial institution where you want to open or fund your new IRA (called the receiving custodian) and tell them you want to roll over funds from a 401(k). They will send paperwork to your old plan administrator requesting the transfer. Your old plan then sends the money directly to your new IRA custodian.

You'll need to provide your new IRA custodian with the name of your old employer, the plan administrator's contact information, and your account number with the old plan. Many custodians have a rollover department that handles this work for you — they'll contact your old plan, request the funds, and track the transfer until it arrives. This typically takes one to two weeks, though some plans are slower. You don't have to worry about the 60-day clock because the money is never in your possession.

The main limitation is that you can only do a direct transfer if your old plan allows it. Most employer plans do, but some older or smaller plans may require you to take an indirect rollover instead. Your old plan's administrator can tell you which method they support.

The indirect rollover method: you receive and deposit the check

An indirect rollover means your old plan sends you a check for the balance. You then deposit that check into your new IRA within 60 days. This method is faster on the surface — you can receive the check in a few business days — but it puts the responsibility on you to meet the important date.

When you request an indirect rollover, your old plan will mail you a check. The check is made out to you, not to your IRA custodian. You take that check to your bank or brokerage and deposit it into your IRA account. The 60-day window starts the day you receive the check, not the day you request it. If you deposit it on day 61, the IRS treats the entire amount as a taxable distribution, and you'll owe income tax on it for that year. You cannot extend the 60-day important date, even if your bank is slow to process the deposit.

One other thing to know: your old plan may withhold 20 percent of the balance for federal income tax. If your balance is $100,000, you might receive a check for $80,000 and owe taxes on the $20,000 that was withheld. You can still roll over the full $100,000 if you deposit the $80,000 check plus $20,000 of your own money within 60 days, but many people don't realize this and end up with a smaller rollover than they expected.

What you need before you start

Gather these items before you contact your new IRA custodian or your old plan administrator. You'll need your Social Security number, the name of your old employer and its plan administrator, your account number with the old plan, and the approximate balance you want to roll over. If you don't know the plan administrator's name, your old employer's HR department or your last 401(k) statement will have it.

You also need to decide what type of IRA to open. A traditional IRA accepts pre-tax money from a 401(k) without any tax consequence at the time of the rollover. A Roth IRA accepts after-tax money, but rolling pre-tax 401(k) funds into a Roth triggers income tax on the amount you roll over. Most people roll into a traditional IRA to avoid that tax bill. If you already have an IRA, you can roll the 401(k) into that existing account instead of opening a new one.

Finally, choose where you want to open or fund your IRA. Common custodians include Fidelity, Vanguard, Charles Schwab, and most banks. Different custodians charge different fees and offer different investment options, so compare a few before you decide. Once you've chosen, contact them and ask for their rollover department.

Step-by-step: direct transfer process

Step 1: Open or identify your IRA. If you don't already have an IRA with the custodian you've chosen, open one now. This usually takes 10 to 15 minutes online. You'll provide your name, Social Security number, address, and employment information.

Step 2: Contact your new custodian's rollover department. Call or visit their website and tell them you want to roll over a 401(k). They'll send you a form or ask you questions about your old plan. Provide your old employer's name, the plan administrator's name, and your account number.

Step 3: Sign the rollover authorization. Your new custodian will prepare paperwork for you to sign. This authorizes them to request the funds from your old plan. Some custodians do this entirely online; others mail you a form.

Step 4: Wait for the transfer. Your new custodian sends the request to your old plan. The old plan processes it and sends the money directly to your new custodian. This usually takes one to two weeks, but can take longer if your old plan is slow or if there are complications.

Step 5: Confirm receipt and invest the funds. Once the money arrives in your IRA, your new custodian will notify you. The funds will sit in a cash account until you invest them. Log into your account and choose how you want to invest the money — stocks, bonds, mutual funds, or whatever options your custodian offers.

Step-by-step: indirect rollover process

Step 1: Request the distribution from your old plan. Contact your old plan administrator or log into your account online and request a distribution. Tell them you want an indirect rollover (some plans call this a "rollover check" or "rollover distribution"). Ask them to mail the check to you, not to your new custodian.

Step 2: Receive the check. The check will arrive in the mail within a few business days. The check is made out to you. Open it when ready and note the date you received it — this starts your 60-day clock.

Step 3: Open or identify your IRA if you haven't already. If you don't have an IRA yet, open one with the custodian of your choice. This takes 10 to 15 minutes.

Step 4: Deposit the check into your IRA within 60 days. Take the check to your bank or brokerage and deposit it into your IRA account. You can do this in person, by mail, or by mobile deposit if your bank offers it. Keep a record of the deposit date.

Step 5: Invest the funds. Once the check clears, the money is in your IRA. Choose your investments through your custodian's platform.

What happens to employer match and company stock

Employer matching contributions are part of your 401(k) balance and roll over with the rest of your money. There's no special treatment — they move to your IRA just like your own contributions do. Company stock held in your 401(k) can also be rolled over, but some plans have rules about how to handle it. Ask your old plan administrator whether they'll transfer the stock as-is or require you to sell it first and roll over the cash.

If your plan offers a special tax break called Net Unrealized Appreciation (NUA) on company stock, rolling the stock into an IRA may not be the best choice. NUA allows you to pay a lower tax rate on the stock's growth if you take it out of the plan and hold it separately. This is a complex situation — if your 401(k) holds a large amount of company stock, talk to a tax professional before you roll it over.

Frequently Asked Questions

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

No, not in most cases. You can only roll over a 401(k) after you leave the employer. Some plans allow "in-service rollovers" if you're age 59½ or older, but this is rare. Check with your plan administrator to see if your plan offers this option.

What if my old plan won't do a direct transfer?

You'll have to do an indirect rollover instead. Request a distribution check and deposit it into your new IRA within 60 days. Be aware that your old plan may withhold 20 percent for taxes, so you may receive less than you expected.

Can I roll over a 401(k) to a Roth IRA?

Yes, but you'll owe income tax on the amount you roll over. If your 401(k) balance is $100,000 and you roll it into a Roth, you'll owe income tax on that $100,000 in the year you do the rollover. Most people roll into a traditional IRA to avoid this tax bill.

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

The IRS will treat the money as a taxable distribution. You'll owe income tax on the full amount, plus a 10 percent early withdrawal penalty if you're under age 59½. There's no way to extend the important date, so mark your calendar and deposit the check as soon as you receive it.

Do I have to roll over the entire 401(k) balance?

No. You can roll over part of your balance and leave the rest in your old plan, or take it as a distribution. However, if you do a partial rollover, your old plan may charge you a fee for keeping a small balance, so check with them first.