How to Roll Over Your 401k When Leaving a Job

Rolling over your 401(k) when you leave a job moves your retirement savings from your former employer’s plan into an IRA or your new employer’s plan, keeping your money tax-deferred and avoiding penalties. Before you start, gather your latest 401(k) statement and contact information for both the old and new plan administrators, and decide where you want the money to go.

What You’ll Need

• Your most recent 401(k) account statement (or online access)
• Contact details for your former employer’s plan administrator
• Your new employer’s plan administrator contact (if rolling into a new 401(k))
• Your IRA account details (if rolling into an IRA)
• Personal identification (driver’s license, Social Security number)

Step-by-Step

1. Decide where to roll over your 401(k). Your main options are a traditional IRA, a Roth IRA (if you’re willing to pay taxes on the conversion), or your new employer’s 401(k) plan if it accepts rollovers. Compare fees, investment choices, and withdrawal rules. An IRA often gives you more investment flexibility, while a new 401(k) may allow penalty-free withdrawals after age 55 if you leave that job.
2. Check the rules and fees of your current plan. Log in to your 401(k) account or call the plan administrator. Ask about rollover eligibility, any account closure fees, and whether the plan requires a minimum balance to stay (if you’re considering leaving it).
3. Open the receiving account if needed. If you’re rolling into an IRA, open one at a brokerage or bank. If you’re rolling into your new employer’s plan, confirm it accepts rollovers and get the necessary paperwork or online instructions.
4. Initiate a direct rollover. Contact your old plan administrator and request a direct rollover (also called a trustee-to-trustee transfer). This means the money goes directly from your old plan to the new account, with no check made out to you. This avoids the 20% mandatory withholding that applies to indirect rollovers.
5. Fill out the rollover paperwork. Provide your new account’s details, including the account number and the institution’s address. If you’re moving funds to a new 401(k), you’ll need the plan’s name and the administrator’s mailing address. Double-check that the check is made payable to the new financial institution, not to you.
6. Track the transfer. Note the date the old plan sends the funds. Direct rollovers typically take 1–3 weeks. Keep the confirmation numbers and check your new account regularly to ensure the money arrives.
7. Invest the funds in your new account. Once the money lands in your IRA or new 401(k), you’ll need to choose investments. If you do nothing, it may sit in cash. Allocate it according to your risk tolerance and retirement timeline.
8. Verify and keep records. After the transfer, confirm that the full balance arrived (minus any legitimate fees your old plan charged). Save all statements and emails for tax season. You should receive a Form 1099-R from your old plan and possibly a Form 5498 from your new IRA, but the rollover itself is not taxable if done correctly.

Common Mistakes

• Doing an indirect rollover and missing the 60-day deadline. If you receive a check made out to you, you have 60 days to deposit it into a new retirement account. Miss that window and the IRS treats it as a taxable distribution, plus a 10% early withdrawal penalty if you’re under 59½.
• Forgetting the 20% withholding. With an indirect rollover, your old plan must withhold 20% for taxes. You’d need to make up that amount from your own pocket to roll over the full balance, or you’ll owe taxes on the withheld portion.
• Rolling a Roth 401(k) into a traditional IRA. This would make your after-tax Roth money taxable again. Keep Roth funds in a Roth IRA or a new employer’s Roth 401(k) if available.
• Not considering company stock. If your 401(k) holds appreciated employer stock, special tax treatment (net unrealized appreciation) might save you taxes. Consult a tax professional before rolling over.
• Cashing out instead of rolling over. Taking the money as cash triggers income tax and a 10% penalty if you’re under 59½, and you lose decades of tax-deferred growth.

Tips

• Always choose a direct rollover. It’s the safest and simplest way to avoid taxes and penalties.
• Compare fees. If your old 401(k) has low fees and good investment options, you might leave it there (if the balance is above the plan’s minimum). But if fees are high, rolling to an IRA often saves money.
• Watch out for rollover checks. If your old plan insists on mailing a check to you, make sure it’s made payable to the new custodian, not to you. That still counts as a direct rollover.
• Consider a backdoor Roth. If you expect to need a Roth IRA in the future and your income is too high for direct contributions, rolling your traditional 401(k) into a traditional IRA first can complicate the backdoor Roth strategy. Weigh this before choosing an IRA.
• Keep your beneficiary designations updated. After the rollover, set beneficiaries on your new IRA or 401(k) to match your wishes.

Troubleshooting

• The check is made out to you. If you receive a check in your name, you have 60 days to deposit it into a new retirement account. To avoid the 20% withholding issue, deposit the full amount (including the withheld portion) from your own savings if you can, and claim the withheld amount as a credit on your tax return. If you can’t, you’ll owe tax on the withheld amount.
• The transfer is taking longer than expected. Call the old plan administrator and ask for a status. Sometimes they need a signature or a voided check. Keep a record of who you spoke to and when.
• You missed the 60-day deadline. The IRS may waive the deadline if you had a good reason (e.g., bank error, illness). You can apply for a waiver by calling the IRS or filing a letter with your tax return. Otherwise, the distribution is taxable and possibly penalized.
• The old plan won’t let you roll over because you have a loan. If you have an outstanding 401(k) loan, you must repay it before rolling over, or it will be treated as a distribution. Ask your plan administrator for the payoff amount and deadline.
• You accidentally rolled into a Roth IRA and now owe taxes. If you intended a traditional rollover, you can recharacterize the contribution (move it back to a traditional IRA) before the tax filing deadline. Contact your IRA custodian to do a recharacterization.

Frequently Asked Questions

Can I roll over my 401(k) after I’ve already left the job?

Yes, you can roll over a 401(k) from a former employer at any time, even years later. The same rules apply.

What happens if I roll over a traditional 401(k) into a Roth IRA?

You’ll owe income tax on the full amount converted, because traditional contributions were pre-tax. The conversion is a taxable event, but future growth and withdrawals are tax-free.

Can I roll over my 401(k) into my new employer’s plan if I have a loan?

Typically, you must repay the loan before the rollover. If you don’t, the outstanding balance is treated as a distribution and is taxable and possibly penalized.

Do I have to roll over my 401(k) when I leave my job?

No, you can leave it with your former employer, but you’ll no longer be able to contribute. You can also cash out, but that’s rarely a good idea due to taxes and penalties.

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

No, you can roll over the entire vested balance. However, if you have after-tax contributions, they can be rolled to a Roth IRA without tax, while earnings on those contributions are taxable if not rolled to a traditional IRA.

How long do I have to complete a rollover?

For a direct rollover, there’s no time limit. For an indirect rollover (where you receive the money), you have 60 days from receipt to deposit it into a new retirement account.

Related

• Restore iPhone from Backup: iCloud & iTunes Steps
• Join Celestial Discord for Drops & Giveaways
• Spell Check Not Working in Google Docs? Fix It