401(k) to IRA Rollover: The Complete Guide

TL;DR: The clean way to move a former employer’s 401(k) into an individual retirement account (IRA) is a direct, trustee-to-trustee rollover, where the money goes straight from the plan to the IRA custodian and no tax is withheld. The alternative, a 60-day indirect rollover, pays the check to you first, triggers mandatory 20% withholding from the plan, and forces you to make up that withheld amount out of pocket. A 401(k)-to-IRA rollover does not count against the separate rule limiting IRA-to-IRA rollovers to one per 12-month period.

Rolling a 401(k) into an IRA means moving the balance from a former employer’s plan into an individual retirement account, either directly between the two custodians or indirectly through a check paid to you that you then redeposit. The Internal Revenue Service recognizes three methods, and which one you choose determines whether tax gets withheld and how much of the balance reaches the new account. This guide covers each method, the withholding and deadline rules, how the move gets reported, and the step-by-step process. It is educational information, not individualized tax, legal, or financial advice. For a broader look at how a rollover fits into a retirement plan, see our IRA education hub.

Direct rollover: the clean, no-withholding route

A direct rollover moves the money custodian to custodian and avoids withholding entirely, because the balance never passes through your hands, so there is nothing to withhold and no 60-day deadline to redeposit it.

The IRS defines three ways money can move out of a former employer’s plan. A direct rollover is where “you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA,” and “no taxes will be withheld.” A trustee-to-trustee transfer is the same move initiated from the receiving side, again with no withholding. A 60-day rollover is what happens when “a distribution from an IRA or a retirement plan is paid directly to you,” and you then have 60 days to deposit all or part of it into an IRA or another plan.

For a 401(k)-to-IRA move, the difference comes down to who touches the money. In a direct rollover, the plan administrator sends the balance straight to the receiving custodian, often by check made payable to the custodian “for the benefit of” the account holder. There is no tax consequence in the year of the move for pre-tax money going to a Traditional IRA, since the IRS Rollover Chart lists a qualified plan such as a 401(k) as a permitted pre-tax source for a Traditional IRA. Because the money never passes through the account holder’s hands, there is nothing to withhold and nothing to redeposit within a deadline. That is why the direct or trustee-to-trustee route is the default recommendation, and the indirect 60-day method is best treated as a fallback.

Indirect rollover and the mandatory 20% withholding

An indirect rollover pays the distribution to you first and triggers mandatory 20% withholding from the plan, which you then have to make up out of pocket to roll over the full original amount.

A plan distribution paid to you directly is subject to mandatory withholding of 20%, even if you fully intend to roll it over. The IRS is explicit that “withholding does not apply if you roll over the amount directly to another retirement plan or to an IRA.” This requirement comes from IRC section 3405(c)-1), which taxes eligible rollover distributions not moved by direct rollover. A distribution paid in a direct rollover is exempt from it.

The IRS illustrates the trap with a plain example: Jordan, age 42, received a $10,000 eligible rollover distribution from her 401(k), and her employer withheld $2,000. To roll over the full $10,000, Jordan has to contribute $2,000 from other sources, since only $8,000 actually arrived in her hand. If she rolls over just the $8,000 and does not make up the difference, the $2,000 withheld becomes taxable income and can also trigger the 10% additional tax on early distributions unless an exception applies. This is the most common way an indirect rollover costs more than intended, and it is avoidable entirely with a direct rollover. IRA distributions, by contrast, carry a different, elective 10% withholding rate rather than the mandatory 20% that applies to plan payouts.

The 60-day deadline and the self-certification relief path

You have 60 days to redeposit a distribution paid to you, and a missed deadline is no longer automatically fatal, because Rev. Proc. 2020-46 lets a taxpayer self-certify a permitted reason for a waiver of the requirement.

If a 401(k) distribution is paid to you rather than moved directly, the clock starts immediately. The IRS states that “you have 60 days from the date you receive an IRA or retirement plan distribution to roll it over to another plan or IRA.” This is a statutory requirement under IRC 408(d)(3)(A)(i), which excludes the distribution from gross income only if the entire amount is redeposited “not later than the 60th day after” it is received.

Missing that window used to mean the distribution became fully taxable, with limited exceptions. Rev. Proc. 2020-46 changed that by listing permissible reasons a taxpayer can self-certify eligibility for a waiver of the 60-day requirement, such as an error by the financial institution or a delay caused by death or serious illness in the family. The self-certification addresses only the reason for missing the deadline, not whether the distribution was otherwise eligible to be rolled over. Plan administrators and custodians can accept a late rollover if the saver provides the model letter in the revenue procedure, though the IRS can still assess tax and penalties if it later finds the stated conditions were not met.

The one-rollover-per-year rule does not apply here

A 401(k)-to-IRA rollover does not count against the separate rule limiting IRA-to-IRA rollovers to one per 12-month period, so moving a former employer’s plan will not use up that separate allowance for the year.

A separate rule sometimes gets confused with this process. Since January 1, 2015, an individual can make only one 60-day rollover from an IRA to another (or the same) IRA in any 12-month period, aggregated across every IRA the person owns, including SEP and SIMPLE IRAs. This rule traces to IRC 408(d)(3)(B) and was confirmed on an aggregate basis by the Tax Court in Bobrow v. Commissioner.

That limit applies specifically to IRA-to-IRA 60-day rollovers. It does not apply to a rollover from an employer plan into an IRA. The IRS lists plan-to-IRA rollovers, IRA-to-plan rollovers, plan-to-plan rollovers, trustee-to-trustee transfers, and Roth conversions as exceptions that fall outside the one-per-year count. So moving a former employer’s 401(k) into an IRA will not use up or interfere with the separate IRA-to-IRA rollover you are allowed to make that same year.

How each account type is taxed on the move

Tax treatment depends on the account type on both ends of the move, since pre-tax 401(k) money rolled into a Traditional IRA is untaxed while the same money rolled into a Roth IRA is a taxable conversion.

A rollover’s tax result is set by what kind of money is leaving the plan and what kind of account receives it. Pre-tax 401(k) money rolled into a Traditional IRA is not a taxable event, since both accounts hold pre-tax dollars and the deferral simply continues.

Rolling pre-tax 401(k) money into a Roth IRA is different. The IRS treats it as a taxable conversion, because a Roth IRA holds after-tax money, and “a conversion to a Roth IRA results in taxation of any untaxed amounts” moved into it. The pre-tax balance becomes taxable income in the year of the rollover. Our Roth conversion guide walks through that tax tradeoff in more depth.

A Roth 401(k) balance is treated differently again. Distributions from a designated Roth account can only be rolled over to another designated Roth account or to a Roth IRA, completed by the 60th day if not done directly. Because both accounts hold after-tax money, this move is not a taxable conversion. Knowing which of these three lanes applies is the first decision to make, and it is worth reviewing the different account types an IRA can take before choosing a destination.

How to roll over a 401(k) into an IRA, step by step

Rolling a 401(k) into an IRA comes down to five steps: open the receiving IRA, request a direct rollover from the plan, redeposit within 60 days if a check is issued to you, decide Traditional versus Roth before the money moves, and keep the confirming tax forms.

1. Open the receiving IRA first.Confirm the Traditional IRA, Roth IRA, or both, is set up to accept a rollover contribution before contacting the former employer’s plan. A self-directed IRA is one option if the goal is a broader range of IRA-eligible assets once the rollover lands.
2. Request a direct rollover from the plan administrator. Ask specifically for a direct rollover or trustee-to-trustee transfer, not a distribution paid to you, and provide the receiving custodian’s account details. A direct rollover check is normally made payable to the new custodian “for the benefit of” the account holder. A check made payable to the individual is a distribution subject to the 20% withholding described above.
3. If a check is issued to you instead, redeposit the full original amount within 60 days. This means replacing any withheld amount out of pocket. Missing the window converts the distribution to taxable income, subject to the self-certification relief above for a genuine, documented reason.
4. Decide Traditional versus Roth before the money moves. Because pre-tax to Traditional is untaxed and pre-tax to Roth is a taxable conversion, make this decision deliberately. Our IRA investing by life stage guide can help frame it against a broader timeline.
5. Keep the confirming tax forms. The former plan issues Form 1099-R and the receiving custodian issues Form 5498, described below. A rollover is not a contribution and does not count against the annual IRA contribution limit, but it is worth logging separately from your regular contribution tracking so the two are never conflated at tax time.

How the rollover is reported: Forms 1099-R and 5498

A direct rollover is a reportable event even though it is not taxable, with the plan issuing Form 1099-R using distribution code G and the receiving custodian reporting the contribution on Form 5498.

A direct rollover is still a reportable event, even though it is not taxable. Per the IRS Instructions for Forms 1099-R and 5498, the distributing plan reports the payout on Form 1099-R, using distribution code “G” in Box 7 for a direct rollover, with $0 in Box 2a because no amount is taxable. The receiving custodian reports the rollover contribution on Form 5498, Box 2, which captures “direct rollovers from qualified plans” along with 60-day rollover contributions received. This pairing is how the IRS matches money leaving the plan to money arriving in the IRA, even though nothing is owed. A true trustee-to-trustee transfer between two like IRAs, by contrast, is not reportable and does not generate this pairing, since the IRS treats it as a transfer rather than a rollover.

In-service rollovers while still employed

You may be able to roll money out of a 401(k) while still employed there, but whether an in-service rollover is available and which portion of the balance qualifies is governed entirely by the plan document.

Rolling over a 401(k) does not always require leaving the employer first. Whether an in-service rollover is available, and which portion of the balance is eligible, is governed entirely by the plan document. The IRS explains that a plan “is not required to allow distributions for every possible distributable event,” and the document itself “must clearly state when a distribution will be made.” For 401(k), profit-sharing, and stock bonus plans, elective deferrals, meaning the portion an employee contributed from their own pay, may become distributable at termination of employment, at age 59½, or on a qualifying hardship. Employer contributions may be distributable on a different schedule the plan sets, including at an age the plan specifies.

Pension-type plans are more restrictive. A traditional pension plan generally cannot make in-service distributions unless the plan terminates or the employee reaches age 59½, while profit-sharing plans can permit them in more situations. Because eligibility and timing depend on the specific plan’s summary plan description, the only way to confirm whether an in-service rollover is available is to request that document or ask the plan administrator directly.

FAQ

How do I roll over a 401(k) to an IRA? Open the receiving IRA first, then ask the former employer’s plan administrator for a direct rollover or trustee-to-trustee transfer so the money moves custodian to custodian without withholding.

What are the 401(k) rollover rules I need to know? A direct rollover avoids the mandatory 20% withholding a plan distribution otherwise triggers, a 60-day deadline applies to any distribution paid to you, and the move does not count against the separate rule limiting IRA-to-IRA rollovers to one per 12 months.

What is the difference between a direct and an indirect rollover? A direct rollover, or trustee-to-trustee transfer, sends the money straight from the 401(k) plan to the IRA custodian with no withholding. An indirect, or 60-day, rollover pays a check to you first, and the plan must withhold 20%, which you then need to replace from other funds to roll over the original full amount within the deadline.

Is a 401(k) to IRA rollover taxable? A direct rollover of pre-tax 401(k) money into a Traditional IRA is not taxable. Rolling pre-tax 401(k) money into a Roth IRA is a taxable conversion. A Roth 401(k) rolled into a Roth IRA is not taxable, since both accounts already hold after-tax money.

What are the pros and cons of a 401(k) to IRA rollover? An IRA can offer a wider investment menu and let you consolidate accounts. The tradeoffs are the withholding and deadline risk of an indirect rollover if not done directly, choosing the correct account type to control tax treatment, and losing the specific investment options or plan-level protections the 401(k) offered. Always consult your own legal, financial, and tax professionals before opening or changing a retirement account, and use a retirement calculator or your account projections to see how the rollover affects your longer-term plan.

By Tim Schmidt + Sean Webster Reviewed by Sean Webster