Maintain tax-advantaged savings with added flexibility.
Switching jobs? Instead of leaving your 401(k) funds with your old employer's plan, a rollover IRA may give you added flexibility and a consolidated view of your retirement accounts.
At its heart, a rollover IRA (Individual Retirement Account) involves transferring funds from one retirement account—like a 401(k), 403(b) or 457(b)—to an IRA. An IRA rollover can also allow you to consolidate multiple IRAs into a single account. This can give you more control over your retirement assets while keeping the tax advantages these accounts offer.
To roll a 401(k) over into an IRA, you'll first need to open an IRA if you don't already have one. You'll then need to contact your 401(k)'s plan administrator to request a transfer, at which point they'll send you paperwork to complete. Depending on your financial institution and the type of transfer you choose, the entire rollover process should be completed within a few weeks.
Generally speaking, you have two options for rolling your 401(k) over into an IRA: a direct or an indirect rollover. With a direct rollover, your 401(k) plan administrator transfers money directly from your retirement account to your IRA administrator; you don't touch the money at all. With an indirect rollover, your 401(k) plan provider will write you a check with your account balance less any withheld taxes. You'll then have 60 days to deposit that money into your IRA, or else you could face additional fees and taxes. Any taxes withheld by your old employer for tax purposes would be returned to you when you file your tax return for the year. A direct rollover tends to be the easiest option for most people. You're allowed only one indirect rollover per year. This limitation does not exist for direct rollovers.
Yes, it's possible to roll over a portion of your 401(k) into an IRA while withdrawing the rest or moving it to a different account, like your new employer's 401(k). This is called a partial rollover.
Yes. Once you've opened your rollover IRA, you can continue contributing to it just as you would with any other IRA. For the 2024 and 2025 tax years, you can contribute up to $7,000 to an IRA if you are under 50 or $8,000 if you are 50 or older.
While many people contribute pre-tax funds to their IRA, it's possible to make after-tax contributions as well. These are known as non-deductible contributions, and the amount of this type of contribution (known as the basis) won't be taxed when you withdraw your funds in retirement. If you have these types of contributions to an IRA, you may want to keep these funds separate from pre-tax contributions to avoid any tax headaches down the road.
Not necessarily. In most cases, you could leave your funds where they are if you're happy with your current investment options. The details of your plan will dictate your options. Then it's really a matter of what makes the most sense for your situation.
If you're younger than 59 ½ and make a withdrawal from your rollover IRA, it counts as an early withdrawal. This will usually trigger income taxes as well as a 10% penalty, though there are exceptions. For example, it may be possible to make an early withdrawal penalty-free if you're using that money to put a down payment on your first home, pay for birth or adoption expenses, cover educational costs, cover health insurance premiums in certain situations, recover from a federally declared disaster, cover expenses related to a disability or pay for a personal emergency.
