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

A 401(k) rollover moves retirement savings from a former employer's plan into an IRA or a new 401(k). Done as a direct rollover, it's tax-free. The money stays in a tax-advantaged account, you typically get more investment options, and nothing is owed to the IRS at the time of the transfer.

When you leave a job, your 401(k) (opens in new tab) stays at your old plan until you do something with it. You've got four choices: leave it there, roll it to your new employer's plan, roll it to an IRA, or cash it out. Leaving it where it is works fine if the investment options are decent and the fees aren't terrible. Rolling to a new employer's plan keeps things consolidated, though you're still limited to whatever that plan offers. And cashing out? That's paying income tax on the full amount, plus a 10% penalty if you're under 59.5. It's almost always the most expensive option, and once you do it the money permanently loses its tax-advantaged status. People pick it because it's the least paperwork. That's a mistake.

Rolling a traditional 401(k) to a traditional IRA is a tax-free transfer. No tax owed, no penalty. Once it's in the IRA, you can invest in individual stocks, ETFs, bonds, mutual funds, whatever your IRA custodian supports. That's the main reason people move old 401(k)s to IRAs: more control, more options.

For background on how IRAs compare to 401(k)s and other account types, see the retirement accounts explainer.

A direct rollover sends money straight from your old 401(k) to your IRA custodian. The check is payable to the custodian for the benefit of your account, not to you personally. You never touch the money, nothing is withheld, no 60-day clock starts. This is the method to use.

An indirect rollover is where you can get into trouble. The distribution goes to you first, and the plan is required by law to withhold 20% for federal income taxes. So you receive 80% of the balance. From there you have 60 days to deposit the full original amount (opens in new tab) into an IRA, including the withheld 20%, which you have to cover out of pocket. Deposit only the 80% you received and that missing 20% becomes a taxable distribution, subject to the 10% early withdrawal penalty if you're under 59.5. You'll eventually get the withheld amount back as a tax refund, but the penalty doesn't go away.

The indirect rollover is legal. But for a standard 401(k)-to-IRA transfer, there's almost no reason to use it. Request a direct rollover. If the plan administrator seems confused, ask them to make the check payable to your IRA custodian rather than to you. That phrasing usually settles it.

A traditional 401(k) holds pre-tax money. A Roth IRA holds post-tax money. When you roll the first into the second, you're converting pre-tax dollars to post-tax dollars, and the whole converted amount becomes taxable income that year. No 10% early withdrawal penalty on the conversion itself. But you will owe income tax on whatever you convert.

So does that ever make sense? Yes. The honest answer is: it depends on your tax bracket now versus what you expect in retirement, the account size, and a few other things that get complicated quickly. Converting a large balance in a high-income year can push you into an even higher bracket. This isn't a back-of-the-envelope decision. The IRS publishes the full rules in Publication 590-A (opens in new tab), but most conversions benefit from a CPA looking at the numbers first.

If you have a Roth 401(k) (contributions already after-tax), rolling it to a Roth IRA is a tax-free transfer, same as traditional-to-traditional. Direct rollover is still the right method.

The main argument for rolling over is flexibility. Most 401(k) plans limit you to a fixed menu of mutual funds and target-date funds. An IRA at a full-service custodian opens up individual stocks, ETFs, bonds, and access to professional management. If your old plan's investment options are limited or its fees are high, moving the money gives you more control.

The argument for staying is narrower. Some large employer plans negotiate institutional pricing below what you'd pay in an IRA. 401(k) plans also carry stronger federal creditor protection under ERISA. IRA creditor protection varies by state, so if you're in a profession with significant liability exposure, that gap matters.

A few situations worth pausing on before rolling over:

• You hold company stock in the plan. Net unrealized appreciation (NUA) rules sometimes make distributing appreciated employer stock to a taxable account more tax-efficient than rolling it into an IRA. Rolling it over eliminates that option permanently. Talk to a CPA first if you have company stock in the plan.
• You plan to retire between 55 and 59.5. The Rule of 55 lets you take penalty-free distributions from a 401(k) if you leave the job in or after the calendar year you turn 55. That rule doesn't apply to IRAs. If you roll the money over before reaching 59.5, you lose access to it without penalty until then.
• You're starting a new job soon. Some employer plans accept incoming rollovers. If you expect to join a new plan shortly, it may be worth waiting to see what that plan offers before deciding.

This article covers the mechanics. For guidance on whether a rollover makes sense in your specific situation, consult a tax or financial professional. Investing involves risk, including the possible loss of principal.

Step 1: Decide what kind of IRA the money is going into. Traditional 401(k) to traditional IRA is tax-free. Traditional 401(k) to Roth IRA is a conversion, taxable in the year you do it (covered in the section above). Roth 401(k) to Roth IRA is tax-free. Settle this before any paperwork starts. The receiving account type drives everything that follows.

Step 2: Open the IRA before you initiate the rollover. The account needs to exist before the money arrives. If you're planning to have it managed by an investment adviser, open it under their advisory agreement first. Narstar manages rollover IRAs held at Interactive Brokers, starting at $3,000 (Starter Account available at $100 with six months to reach $3,000). If that's the direction you're considering, see how it works below before you start the paperwork. Still deciding on an adviser? Understanding the difference between fee-only and fee-based structures matters before you sign anything.

Step 3: Contact your old plan administrator and request a direct rollover. They'll ask for the receiving custodian's name, account number, and often a letter of acceptance from the new IRA custodian. Get that letter from your IRA custodian first so you have it ready. Some plans handle this online. Others require a phone call or mailed forms. Ask which on the first contact so nothing stalls waiting on paper.

Step 4: Check the payable-to line on the check. It should read: "[Custodian Name] FBO [Your Name], IRA." FBO means "for the benefit of." A check made payable to you personally triggers indirect rollover rules: 20% withheld, 60-day deadline. That's the situation you want to avoid entirely.

Step 5: Confirm the money arrived intact. When the funds post, check the amount against your final 401(k) statement. Plans sometimes send a small second check weeks later for trailing dividends or final contributions. That's also rollover money. Deposit it into the IRA, don't cash it.

Step 6: Invest the cash. Once the money arrives, it sits uninvested until you do something with it. The IRA custodian won't invest it automatically. If you're in a managed account, the adviser handles it once funds clear. If you're managing it yourself, you decide. Most people skip this step for weeks or months. That's a mistake.

Opening the IRA is the fast part: usually one to three business days online. The slow part is your old plan. Most administrators take five to ten business days to process the request after paperwork is complete, and some still mail a paper check, which adds another week or two. Plans that require phone calls, notarized forms, or spousal consent stretch the timeline further. None of that is in your control.

During transit, most plans liquidate your investments and send the rollover as cash. That means you're out of the market between liquidation and reinvestment. Markets can move either direction during that window. It's not a reason to skip the rollover. It is a reason to invest the cash promptly once it arrives, rather than letting it sit.

Cashing out instead of rolling over. You'll owe income tax on the full balance, plus a 10% penalty if you're under 59.5. And the money permanently loses its tax-advantaged status. People pick this option because it's the least paperwork. It's also the most expensive decision on the list.

If the check comes to you instead of the custodian, you've turned a clean direct rollover into an indirect one. That means 20% withheld immediately, a 60-day clock, and you covering that withheld amount out of pocket to complete the rollover in full. The fix costs nothing: ask for the check payable to the custodian before anything moves.

Forgetting to invest the cash. The quietest mistake on this list. The money arrives, sits in cash, and nobody notices for months. Nothing about an IRA invests itself.

If you hold employer stock in the 401(k), look at that separately before initiating the rollover. A tax provision called net unrealized appreciation (NUA) can sometimes make it better to move appreciated company stock to a taxable account rather than rolling it into the IRA. Rolling it in wipes out that option permanently. This gets into tax territory, talk to a CPA first if you have company stock in the plan.

Assuming the IRA is automatically the better deal. It often offers more investment options. But some large 401(k) plans carry institutional pricing an IRA won't match. And employer plans generally have stronger federal creditor protection than IRAs, where protection varies by state. A rollover is a decision, not a default.

For years the Department of Labor tried to make one-time rollover recommendations automatically count as fiduciary advice under ERISA. The 2024 Retirement Security Rule was the latest attempt. Federal courts halted it before it took effect, and in March 2026 a federal court vacated it entirely. As of mid-2026 there's no replacement. The full story is here.

What that means practically: when a broker or insurance agent recommends rolling over your 401(k), that recommendation isn't automatically held to a fiduciary standard under federal retirement law. Brokers follow Regulation Best Interest at the point of the recommendation. Insurance agents follow state insurance rules. Registered investment advisers are different: their fiduciary duty comes from the Investment Advisers Act and applies regardless of what the DOL does. what fiduciary duty requires.

Before acting on anyone's rollover recommendation, ask two questions: are you a fiduciary with respect to this recommendation, and how are you paid if I follow it? The answers tell you whose interest the advice was built to serve.

If you roll a 401(k) into a Rollover IRA at Interactive Brokers, we can manage that account under one of our three model portfolios. The account is yours, held in your name at IBKR. Narstar has trading authority to manage the investments but can't withdraw funds or transfer money out. Once the money is in the account and you've signed the advisory agreement, we match it to the Income Portfolio or Growth Portfolio based on your goals and how long you plan to invest. All investing carries risk, including the possible loss of principal.

The advisory fee applies to the balance: 0.60% annually for Income, 1.20% for Growth, 1.60% for Speculative, billed quarterly. On a $50,000 rollover IRA in the Income portfolio, that's $300 a year, charged in $75 quarterly installments. No setup fee, no rollover processing fee.

To be clear: we don't help with the rollover paperwork itself. Contacting your old plan and arranging the transfer is between you, your old plan, and IBKR. What we do is manage the portfolio after the money arrives. If you haven't chosen an adviser yet, the guide to finding a fee-only adviser covers what to verify before signing anything. Before signing with any adviser, ask how they get paid and what it takes to leave. If you have questions about what the account would look like once it's set up, the contact form is the right starting point.

How long does a 401(k) rollover take?

Usually two to four weeks end to end. Opening the IRA takes one to three business days. The old plan's processing usually takes five to ten business days after the paperwork is complete, and mailed checks add more. The timeline section above breaks down where the time goes.

Do I pay taxes on a 401(k) rollover?

A direct rollover from a traditional 401(k) to a traditional IRA isn't a taxable event. Rolling a traditional 401(k) into a Roth IRA is a conversion, and the converted amount becomes taxable income that year. An indirect rollover risks taxes and penalties if you miss the 60-day deadline. Consult a tax professional for your specific situation.

Can I roll over a 401(k) from my current employer?

Usually not while you're still working there, unless the plan allows in-service distributions. Some plans permit this after age 59.5. The options in this article apply to plans from former employers. Check your plan documents or ask the administrator directly.

What happens to my employer match?

The vested portion rolls over with the rest. Anything unvested gets forfeited back to the plan when you leave, on whatever schedule the plan document sets. Your final statement shows the vested balance.

Does Narstar handle the rollover paperwork?

No. That's between you, your old plan, and IBKR. Once the money arrives, we manage the portfolio under one of our three model portfolios. Investing involves risk, including the possible loss of principal. The section above explains what that arrangement looks like.

Can I roll over my 401(k) into an existing IRA?

Yes. If you already have a traditional IRA open, you can direct the rollover into that account. No need to open a new one. The money goes into the existing account. If your existing IRA is a Roth and you're rolling a traditional 401(k), that's a conversion: the full amount becomes taxable income that year. Same rules apply as any Roth conversion.

When can I roll over my 401(k) to an IRA?

After you leave the employer. Separation from service (quitting, being laid off, retiring) is what opens the window. There's no minimum age and no deadline. The money can stay in the old plan for years. You can roll it whenever you're ready. Still employed? Most plans don't allow in-service rollovers before age 59.5, though some do. Check your plan documents.

Can I roll over part of my 401(k) to an IRA?

Yes. Partial rollovers are allowed. You roll a portion into an IRA and leave the rest in the plan. Not every plan administrator makes this easy, but it's permitted. The direct rollover rules apply to whatever amount you move.