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Why Roll Your 401(k) to an IRA?
When you leave an employer, you have several options for your 401(k): leave it in the old plan, roll it to your new employer’s plan, roll it to an IRA, or cash it out (generally a poor choice). Rolling to an IRA is the most popular option for good reasons: more investment choices, often lower fees, and greater flexibility.
Step 1: Choose Your IRA Provider
Before initiating the rollover, decide where your IRA will live. Key factors to consider:
- Investment options: Look for a broad selection of low-cost index funds and ETFs
- Expense ratios: Target funds with expense ratios below 0.20% for core holdings
- Account fees: Many major brokerages now offer no annual IRA fees
- Customer service: Rollover problems happen — accessible support matters
- Rollover assistance: Many custodians offer free rollover concierge services
Major IRA providers include Fidelity, Vanguard, Schwab, TD Ameritrade (now Schwab), and M1 Finance among others. All offer strong platforms for rollover IRAs with no setup fees.
Step 2: Open Your Rollover IRA
Open a Traditional IRA (for pre-tax 401k funds) or a Roth IRA (if you want to convert, accepting the tax bill now for tax-free growth later). Most brokerages allow you to open an account online within 15-30 minutes. You will need your Social Security number, bank account for funding (optional at this stage), and a form of ID.
Once the account is open, record your new IRA account number — you will provide this to your old plan administrator.
Step 3: Contact Your Old Plan Administrator
Call or log into your old 401(k) plan’s website and request a rollover or distribution. Key questions to ask or forms to complete:
- Request a direct rollover to avoid the 20% withholding
- Provide the receiving institution’s name, account number, and mailing address
- Ask if they can send the check directly to the receiving IRA custodian (made payable to “Fidelity FBO [Your Name]” or similar)
- Ask about processing timelines and any applicable fees
Step 4: Complete the Rollover Paperwork
Your old plan will likely require either an online form, a downloadable PDF you sign and return, or a combination. The receiving IRA custodian may also need to provide a letter of acceptance confirming they will accept the rollover. Major brokerages have dedicated rollover teams who handle this process daily.
Step 5: Monitor the Transfer
After submitting your request, log into both accounts periodically to confirm:
- The old 401(k) shows a reduction in balance (funds left the plan)
- The new IRA shows a new deposit (funds arrived)
If you do not see the funds in your IRA within 4-6 weeks, contact both institutions. Keep records of all communication in case there is a dispute.
Step 6: Invest Your Rolled-Over Funds
Funds arrive in your IRA as cash sitting in a money market account. They will not automatically be invested — you must direct them into your chosen investments. Consider your asset allocation (stocks vs bonds) and choose funds aligned with your retirement timeline.
Step 7: Report the Rollover on Your Tax Return
You will receive a Form 1099-R from your old plan reporting the distribution. On your federal tax return, report this as a rollover (not a taxable distribution). The taxable amount should be $0 for a direct rollover. You may also receive a Form 5498 from the IRA confirming the rollover contribution.
FAQ
Can I roll over a Roth 401(k) to a Roth IRA?
Yes. Roth 401(k) funds can be rolled directly to a Roth IRA without triggering taxes. The 5-year holding period for the Roth IRA may reset, but the underlying contributions (not earnings) can always be withdrawn tax and penalty-free.
Can I split a rollover between multiple IRAs?
Yes. You can direct the rollover to multiple IRA accounts as long as each is a direct rollover. Splitting does not create any additional tax complications.
What if I have both traditional and Roth 401(k) balances?
The pre-tax traditional portion rolls to a Traditional IRA. The after-tax Roth portion rolls to a Roth IRA. These are separate transactions and must go into the appropriate account types to maintain their tax character.
Is there a minimum amount for a rollover IRA?
Most major brokerages have no minimum balance requirement for a rollover IRA. You can roll over any amount, from a few hundred dollars to millions.
How long do I have to decide what to do with my old 401(k)?
If your balance exceeds $7,000, your old plan must keep the account available indefinitely. There is no deadline for rolling over — you can act now or years later. However, acting promptly prevents you from losing track of old accounts.
Written by Alex Porter | Updated April 2026 | For educational purposes only.