How to Roll Over a 401(k) to an IRA: Step-by-Step Guide

Why Rolling Over a 401(k) to an IRA Is Often the Right Move

If you've recently left a job — or you're thinking about it — you've probably got a 401(k) just sitting there with your old employer. You have a few options: leave it, cash it out, roll it into your new employer's plan, or roll it into an IRA. For most people, learning how to rollover a 401k to an IRA is the smartest path forward.

Here's why: IRAs typically give you access to a much wider range of investments than any employer plan. You're not limited to whatever 20–30 funds your HR department negotiated. You can choose low-cost index funds, ETFs, individual stocks, bonds — whatever fits your retirement strategy.

Beyond investment flexibility, IRAs often come with lower fees. The average 401(k) plan charges between 0.5% and 2% annually in administrative and fund fees. On a $100,000 balance, that's $500–$2,000 per year — often for mediocre funds you didn't pick. An IRA at Fidelity, Vanguard, or Schwab can get you down to 0.03–0.10% for comparable index funds. Over 20 years, that fee difference compounds dramatically. Use our fee drag calculator to see exactly how much fees are costing you.

This guide walks you through every step of the process — from deciding whether to do a direct or indirect rollover, to actually moving the money, to avoiding the tax traps that catch people off guard.

Direct vs. Indirect Rollover: Know the Difference Before You Start

Before you contact anyone, you need to understand the two ways to execute a rollover. Choosing wrong — or not understanding the difference — can trigger unnecessary taxes and a 10% early withdrawal penalty.

The indirect rollover is a trap waiting to happen. Say you have $50,000 in your 401(k). Your plan administrator withholds 20% ($10,000) and sends you a check for $40,000. To complete a tax-free rollover, you must deposit the full $50,000 into your IRA within 60 days — meaning you'd need to come up with that missing $10,000 from your own savings. If you can't, that $10,000 is treated as a taxable distribution. For most people, the direct rollover is the only sensible choice.

The IRS has full details on rollover rules in IRS Publication 590-A.

Step-by-Step: How to Rollover a 401(k) to an IRA

Here's the exact process. This works whether you're moving $10,000 or $500,000. Take it one step at a time and you won't go wrong.

Step 1: Decide What Type of IRA You're Rolling Into

Your first decision: Traditional IRA or Roth IRA? This matters because it affects whether you'll owe taxes now.

If your 401(k) was funded with pre-tax dollars (the typical case), rolling into a Traditional IRA is tax-free. The money moves, the tax-deferred status continues, and you pay taxes later when you withdraw in retirement. This is the most common rollover scenario and the default choice for most people.

If you want to roll into a Roth IRA, that's a Roth conversion — the full rollover amount gets added to your taxable income for the year. On a $100,000 401(k), you could owe $22,000–$37,000 in federal taxes depending on your bracket. That's not necessarily wrong, but it requires careful planning. Read our full breakdown of Roth IRA vs. Traditional IRA before making this call. Also see our guide on pre-tax vs. Roth contributions to understand the long-term math.

Most people rolling over a traditional 401(k) should default to a Traditional IRA unless they have a specific reason for the Roth conversion — like being in an unusually low tax bracket this year.

Step 2: Open Your IRA Account

If you don't already have an IRA at a brokerage you trust, open one now. Good options include Fidelity, Vanguard, Schwab, and others. The application takes about 10–15 minutes online. You'll need your Social Security number, bank account info, and basic personal details.

Make sure you open the right account type: Traditional IRA for a standard pre-tax rollover, Roth IRA if you're doing a conversion. Don't mix up the account type — reversing it later creates paperwork and potential tax headaches.

You do not need to fund the account before initiating the rollover. Just get the account number — you'll need it for Step 4.

Step 3: Contact Your Old 401(k) Plan Administrator

Call the number on your old 401(k) statements or log into your former employer's benefits portal. Ask specifically for the rollover or distribution department. Be clear: you want to do a direct rollover to an IRA. Use that exact phrase.

They'll ask you a few questions: where the money is going, whether it's a Traditional or Roth IRA, and may require a signature or form. Some plans have a waiting period after your employment ends — often 30–90 days — before they'll process a distribution. Ask about their timeline upfront.

Some plans will initiate the transfer directly by electronic funds transfer (EFT). Others still mail a check made out to your IRA custodian for your benefit — something like "Fidelity FBO [Your Name]." That check goes to you but is made out to the custodian, so it doesn't trigger the 20% withholding. That's still a direct rollover.

Step 4: Provide Your IRA Account Information

Your plan administrator will need your new IRA custodian's name, your IRA account number, and possibly their mailing address or ABA routing number for wire transfers. Get this from your IRA provider before the call. Fidelity, Vanguard, and Schwab all have dedicated rollover departments that can assist if you get stuck on this step.

Double-check every number before submitting. A wrong account number on a six-figure transfer is a pain to unwind — not impossible, but it adds weeks of delay and phone calls.

Step 5: Complete Any Required Paperwork

Most plan administrators have their own rollover request form. Fill it out carefully. Common fields include:

• Your full legal name and Social Security number
• Your 401(k) account number with the old plan
• The receiving institution name and account number
• Rollover type (direct, to Traditional IRA or Roth IRA)
• Whether you want to roll over the entire balance or a partial amount

Some plans require a notarized signature or a signature guarantee (common if your balance is over $10,000–$25,000). Your bank can often handle this. Plan for it — it can add a few days to the process.

Step 6: Monitor the Transfer

Once submitted, a direct rollover typically takes 3–15 business days. Some electronic transfers clear in 3–5 days. Paper checks can take 2–3 weeks, including mail time.

Keep an eye on both accounts. Check your old 401(k) to confirm the outgoing transfer processed. Check your IRA to confirm the funds arrived and were recorded as a rollover (not a contribution — that distinction matters for contribution limits). If you receive a physical check, deposit it immediately — don't let it sit.

Step 7: Invest the Money

This is the step people forget. When rollover funds arrive in your IRA, they often land in a money market or cash account by default. They are not automatically invested. You need to log in and actually invest the money according to your retirement strategy.

A simple approach: a three-fund portfolio with a total US stock market index fund, an international stock index fund, and a bond index fund. Adjust the allocation based on your age and risk tolerance. If you're 35 and decades from retirement, something like 80% stocks / 20% bonds is a reasonable starting point. For a deeper look at structuring your retirement portfolio, see our retirement planning guide.

Common Mistakes That Cost People Real Money

Learning how to rollover a 401k to an IRA is straightforward when done right. But there are a handful of mistakes that show up repeatedly — and they're expensive.

Taking the Cash Instead of Rolling Over

Cashing out your 401(k) when you leave a job is almost always a mistake. The full amount becomes ordinary income, taxed at your marginal rate. If you're in the 22% bracket and cash out $80,000, you'll owe roughly $17,600 in federal income tax — plus a 10% early withdrawal penalty if you're under 59½, which adds another $8,000. You'd walk away with about $52,000 instead of $80,000. And you'd lose all future tax-deferred compounding on that $28,000 you paid out.

Missing the 60-Day Deadline on an Indirect Rollover

If you somehow end up with a check in your hands, the 60-day clock starts the moment the funds leave your old plan. Miss it by even one day and the IRS treats the entire amount as a taxable distribution. The IRS does grant waivers in certain cases (natural disasters, hospitalization, etc.), but you don't want to be filing for a waiver — it's a bureaucratic mess with no guaranteed outcome.

Rolling a Roth 401(k) Into a Traditional IRA

If your old employer plan was a Roth 401(k) — funded with after-tax dollars — you must roll it into a Roth IRA, not a Traditional IRA. Rolling Roth money into a Traditional IRA would be a mess to unwind and could trigger taxes on money that's already been taxed. Always match Roth-to-Roth and traditional-to-traditional unless you're intentionally doing a conversion and understand the tax bill.

Forgetting About Outstanding 401(k) Loans

If you have an outstanding loan against your 401(k) when you leave your employer, you'll typically need to repay it in full — often within 60–90 days of separation. If you can't repay it, the remaining balance is treated as a distribution and taxed accordingly (plus the 10% penalty if you're under 59½). This isn't a rollover issue per se, but it can surprise people and significantly reduce the amount available to roll over.

Not Reviewing the New IRA's Investment Options and Fees

The whole point of the rollover is often to get better, cheaper investment options. If you open an IRA at an institution with high management fees or limited fund choices, you've gained nothing. Before you open an account anywhere, check the expense ratios of the funds you plan to use and whether there are any account maintenance fees. Understand the impact of fees on your portfolio over time with our fee drag calculator.

What Happens to Your Taxes After the Rollover

A properly executed direct rollover is a non-taxable event — but you still have to report it to the IRS. Here's what to expect at tax time.

Form 1099-R

Your old 401(k) plan administrator will send you a Form 1099-R in January following the year of the rollover. This form shows the distribution amount. Don't panic when you see it — a rollover isn't the same as a taxable distribution, but the IRS needs to know about it.

Box 7 of the 1099-R contains a distribution code. For a direct rollover to a Traditional IRA, you'll see code "G." For a rollover to a Roth IRA (which is taxable), you'll see code "2" or "G." Your tax software will walk you through reporting this correctly.

Form 5498

Your new IRA custodian will send a Form 5498 showing the rollover contribution. This form comes later than other tax documents — often in May — because the IRS gives until April 15 (or the filing deadline) to make IRA contributions. You don't need to wait for Form 5498 to file your taxes, but keep it for your records.

State Taxes

Most states follow federal rules and treat a direct rollover as non-taxable. But a handful of states have their own IRA rules or don't recognize certain types of tax-deferred accounts the same way. Check your state's revenue department or a local tax professional if you're in a state with complex income tax rules.

If You Did a Roth Conversion

If you rolled a traditional 401(k) into a Roth IRA, you owe income tax on the converted amount for the year of the rollover. There is no 10% penalty on the conversion itself (just on the earnings if you withdraw them too early). You'll report the taxable portion on your Form 1040. If the conversion is large enough, consider making estimated tax payments to avoid an underpayment penalty. See our guide on tax-efficient investing for strategies to manage this.

Special Situations Worth Knowing About

You're 55 or Older and Still Want Access to the Money

There's a little-known IRS rule called the Rule of 55. If you separate from your employer in the year you turn 55 or later (50 for certain public safety employees), you can take penalty-free withdrawals from that employer's 401(k) — without the normal 59½ age requirement. This exception does not carry over to IRAs. If you roll the money into an IRA, you lose access to this exception and would face a 10% penalty on withdrawals before 59½. Keep this in mind if you're in your mid-to-late 50s and might need funds before retirement age.

Company Stock (NUA Rules)

If your 401(k) holds a significant amount of your former employer's company stock, look into Net Unrealized Appreciation (NUA) rules before rolling everything over. NUA lets you pay ordinary income tax only on the cost basis of company stock distributed from a 401(k), then pay the lower long-term capital gains rate on the appreciation when you eventually sell. Depending on how much the stock has appreciated, NUA treatment can save substantially more than a standard rollover — but the math only works in specific situations. This is one case where talking to a CPA or fee-only financial advisor before you pull the trigger is worth the consultation fee.

Rolling Over After Age 73

Once you've reached age 73, you're subject to Required Minimum Distributions (RMDs) from your 401(k) and Traditional IRA. You cannot roll over your RMD — it must be distributed first. If you attempt to roll over an RMD, the IRS will treat the RMD portion as an excess contribution to the IRA, which triggers a 6% penalty per year until corrected. Take your RMD for the year before initiating the rollover.

After the Rollover: Setting Your IRA Up for the Long Term

Once your money is safely in your IRA and invested, a few housekeeping items will keep you on track for retirement.

Update your beneficiary designations. IRAs pass outside of your will — they go directly to whoever you've named as beneficiary. Many people forget to update this after a rollover. Log into your new IRA account, find the beneficiary section, and make sure the right people are named. This is especially important after major life events like marriage, divorce, or the birth of a child.

Continue contributing annually. A rollover doesn't count toward your annual IRA contribution limit — it's treated separately. In 2025, you can contribute up to $7,000 per year to an IRA ($8,000 if you're 50 or older), subject to income limits for Roth IRAs. Keep contributing. See our 401(k) contribution guide for context on how IRA and 401(k) limits interact if you're starting a new job.

Review your asset allocation annually. Markets move, and your original allocation drifts over time. A quick annual rebalance — selling a bit of what's grown and buying a bit of what's lagged — keeps your risk level where you intended it. Most major brokerages offer tools to check your allocation automatically.

Keep your fee structure lean. Now that you're in control, don't let the savings slip away through high-cost funds. Stick with low-expense-ratio index funds unless you have a compelling reason not to. Every dollar saved in fees is a dollar compounding for your retirement.

Final Take: Just Do It — But Do It Right

The 401(k) to IRA rollover is one of the most impactful financial moves most people will make — and it's genuinely not that complicated once you know the steps. The biggest risk isn't the process itself; it's procrastinating and leaving money sitting in a forgotten old 401(k) where it's costing you in fees and limiting your investment options year after year.

Start with Step 1: decide Traditional IRA or Roth IRA. Then open the account. Then call your old plan. The whole thing — paperwork, transfers, everything — usually wraps up within 2–3 weeks. A few hours of your time protecting potentially hundreds of thousands of dollars in future retirement wealth is one of the best returns you'll ever see.

If you have a complex situation — NUA stock, a large Roth conversion, or you're near the Rule of 55 threshold — spend an hour with a fee-only fiduciary advisor before moving. For everyone else: the direct rollover to a Traditional IRA is straightforward, tax-free, and almost always the right call. Get it done.

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• Roth IRA vs. Traditional IRA: Which One Is Right for You?
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• Pre-Tax vs. Roth Contributions: The Math Behind the Decision
• Tax-Efficient Investing: Keep More of What You Earn
• 401(k) Contribution Guide: Maximize Your Retirement Savings