How to Rollover a 401(k) into an IRA

18 December 2025

So, you’re thinking about rolling over your 401(k) into an IRA? Smart move. Whether you’ve left your job, retired, or just want more control over your retirement savings, rolling over a 401(k) into an IRA can be a game-changer. It sounds more complicated than it really is, but don’t worry—I’m here to walk you through the entire process in plain English.

By the end of this guide, you’ll know exactly what to do, what to avoid, and how to make the best financial decision for your future. Let’s dive in.

What Is a 401(k) Rollover?

Let’s break it down. A 401(k) rollover is the process of moving your money from a former employer’s retirement plan (your 401(k)) into an Individual Retirement Account (IRA).

Why do this? Simple: an IRA generally gives you more investment options, better control over fees, and a single account to manage (especially if you've had multiple jobs with different 401(k)s).

It’s kind of like switching from a fixed menu at a restaurant to a buffet. More choices, more flexibility.

Why Should You Roll Over a 401(k) Into an IRA?

It’s not always about whether you can—it’s about whether you should. Here are some reasons why a rollover might make sense:

1. More Investment Options

401(k)s typically offer a limited number of mutual funds. IRAs? Way more choices—think stocks, bonds, ETFs, and even real estate (with a self-directed IRA).

2. Lower Fees

Some 401(k) plans come with hidden fees and administrative costs. IRAs often have lower expense ratios, especially if you go with a provider like Vanguard, Fidelity, Charles Schwab, or another low-cost broker.

3. Better Control

Who doesn’t want more control over their money? With an IRA, you’re in the driver’s seat. You choose the provider, the investments, and the strategy.

4. Simplified Finances

If you’ve switched jobs a few times, you might have multiple 401(k)s floating around. Rolling them into one IRA means fewer accounts to track—less paperwork, more mental peace.

The Different Types of Rollovers

Before we dig deeper, let’s clear up a little confusion. There are a couple of different rollover methods, and picking the right one matters.

1. Direct Rollover

This is the better choice for most people. Your 401(k) provider transfers your money directly into your new IRA. No taxes withheld. No drama.

2. Indirect Rollover

This is where things get tricky. Your 401(k) provider sends you a check, and you have 60 days to deposit it into your IRA. Miss the deadline, and it’s considered a distribution—and that means taxes and penalties.

Unless you really love walking tightropes, go with the direct rollover.

Step-by-Step Guide To Rolling Over Your 401(k) Into an IRA

Alright, now let’s get into the meat of it. Here’s your 401(k) rollover roadmap:

Step 1: Choose Your IRA Provider

This is your new retirement home, so choose wisely. Look at things like:

- Fees and commissions
- Investment options
- Reputation and customer service
- Tools and resources

Some top IRA providers include Fidelity, Vanguard, Charles Schwab, and TD Ameritrade. Most offer no-fee IRA accounts and tons of investment choices.

Step 2: Open the IRA Account

Opening an IRA takes about 10-15 minutes online. You’ll need some basic stuff, like:

- Your Social Security number
- A government-issued ID
- Your employment information (maybe)
- A funding option (you don’t need to fund it until you do the rollover)

Make sure the type of IRA you open matches your old 401(k). If it’s a traditional 401(k), go with a traditional IRA. If it’s a Roth 401(k), choose a Roth IRA to avoid tax headaches.

Step 3: Contact Your 401(k) Plan Administrator

Reach out to your former employer’s HR department or the 401(k) provider. Tell them you want to do a direct rollover into an IRA. They’ll walk you through their process and give you the forms you’ll need.

Expect questions like:

- What’s the name of your new IRA provider?
- What’s the mailing address or account number for the new IRA?

You may receive a check made out to your IRA provider for the benefit of you (e.g., "Fidelity FBO John Smith"). That’s still considered a direct rollover.

Step 4: Deposit the Funds

If you receive a check, make sure it gets to your new IRA provider ASAP. Some providers even let you mail it in with a deposit slip or drop it off at a branch.

If it’s an electronic transfer, you’re mostly off the hook—just monitor the account to confirm the funds land where they should.

Step 5: Invest Your IRA Funds

Here’s where the fun starts. Your money will just sit in cash until you invest it. So make a plan. Do you want to go aggressive with stocks? Play it safe with bonds? Or maybe a balanced index fund?

This is your chance to tailor your investments to your age, risk tolerance, goals, and time frame.

Stick with low-cost index funds if you’re unsure. They’re like the reliable old truck of the investment world—dependable, efficient, and get the job done.

What to Watch Out For

Rolling over a 401(k) isn’t rocket science, but there are a few landmines you want to avoid.

1. Missing the 60-Day Rule

If you do an indirect rollover and miss the 60-day window, you’ll owe income tax—and possibly a 10% penalty if you’re under 59½.

2. Tax Mismatch

Rolling a traditional 401(k) into a Roth IRA = taxable event!

Unless you’re ready to pay taxes now, keep traditional accounts with traditional, Roth with Roth.

3. Stop-Gap Contributions

If you plan to contribute more to your 401(k), rolling it over closes that door. Make sure you’ve already contributed as much as you intended to for the year.

4. Losing Borrowing Privileges

Some 401(k)s let you borrow money. IRAs do not. Once you roll over, that option disappears.

Frequently Asked Questions

Can I roll over a 401(k) while still employed?

In most cases, no. Unless your plan allows for “in-service withdrawals,” you have to leave your job first.

Is there a limit on how much I can roll over?

Nope. There's no dollar limit on rollovers. You can move the entire balance.

Will I pay taxes on the rollover?

Not if you’re rolling a traditional 401(k) into a traditional IRA or Roth to Roth. But if you mix traditional and Roth, the IRS will come knocking.

Can I roll over an old 401(k) into my current employer’s plan?

Yes, and sometimes that’s a smart move—especially if the new 401(k) has excellent investment options and low fees. But IRAs typically offer more flexibility.

Final Thoughts: Is Rolling Over Worth It?

Look, rolling over a 401(k) into an IRA isn’t just about moving your money—it’s about taking control of your financial future.

Think of it like moving out of your parents’ house (your old employer’s 401(k)) and into your own place (your IRA). You’ll have more freedom, more responsibility, and the chance to build something that really fits your vision for retirement.

So if you’ve got an old 401(k) sitting around collecting dust, maybe it’s time to clean house and make it work smarter for you.

And now that you know how to rollover a 401(k) into an IRA, the only thing left to do… is actually do it.