What Is a 401(k) Rollover?
A 401(k) rollover moves retirement savings from a former employer plan to an IRA or new employer plan. When done correctly as a direct rollover, it is a non-taxable event preserving your tax-deferred growth.
Two types exist: direct rollovers where funds transfer directly between institutions with no tax withholding, and indirect rollovers where a check is issued to you (minus 20% mandatory withholding) and you have 60 days to deposit the full amount including the withheld 20% from your own funds.
When Does a Rollover Make Sense?
- Lower Fees: IRA providers often offer lower-cost investment options. A 1% fee difference on $200,000 over 20 years can cost over $150,000 in lost growth.
- More Investment Choices: IRAs provide access to the full universe of stocks, ETFs, and mutual funds.
- Consolidation: Combine multiple old 401(k) accounts into one IRA for simpler management.
Old Plan Fees vs IRA Fees
At 7% gross return: a plan with 1.5% fees nets 5.5%, while an IRA with 0.10% fees nets 6.9%. On $200,000 over 20 years, that gap grows to over $168,000 difference in your final balance.
Step-by-Step Rollover Guide
- Request the distribution form from your former employer.
- Open a rollover IRA at your chosen brokerage.
- Elect a direct rollover and provide the new custodian details.
- Confirm receipt within 2-4 weeks and follow up if delayed.
- Invest the rolled-over funds per your retirement strategy.
Frequently Asked Questions
Can I roll my 401k into an IRA while still employed?
Generally no. Most plans restrict in-service withdrawals. Some allow them after age 59.5. Check your plan documents or HR department.
How long do I have to complete a rollover?
Indirect rollovers: 60 days from receipt. Direct rollovers: no time limit. The IRS permits only one indirect rollover per 12-month period across all IRAs.
Will my rollover be taxed?
A direct rollover is not taxable. You receive Form 1099-R but report it as a non-taxable rollover on your tax return.
What happens if I miss the 60-day window?
The full amount becomes ordinary taxable income, plus a 10% penalty if under age 59.5. The IRS may grant a waiver in documented hardship cases.
Can I roll over a 401k loan?
No. Unpaid loans become a deemed distribution (taxable plus penalty) unless repaid by your tax filing deadline for that year.
Content by Alex Porter | Updated April 2026 | Educational purposes only