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Home » 401K, IRA's, Roth 401K, Roth IRA

How to Roll Over your 401K to an IRA

Last updated by on May 11, 2016

We just highlighted why you should consolidate your 401K’s into an IRA. Today, we’ll discuss how to actually roll over a 401K into an IRA. It can seem a bit intimidating, but it’s actually quite simple.

When you leave an employer who has provided a 401K, the choice of what to do with that 401K becomes yours.

You have four options at this point:

  1. Withdraw the funds as cash: you do not want to do this as there is a 10% early-withdrawal penalty and other tax implications.
  2. Let it sit: my previous article highlighted you why you should not do this. A large majority of the time, 401K’s carry higher fees and less investment options than IRA’s. And consolidation has its benefits.
  3. Roll your 401K over to your new employer’s 401K: again, IRA’s are superior, so I can’t imagine why you would want to do this, unless you simply didn’t know about the IRA alternative.
  4. Roll your 401K over to an IRA: in most cases, for most people, this is usually the best option.

The Downsides of Rolling a 401K into an IRA:

how to roll over 401KIf you roll a traditional 401K into an IRA, there are no tax implications – as both contain pre-tax funds. The exception would be if your plan contains your company stock. I’m not going to discuss this in detail here, but you shouldn’t be rolling this over.

The same is true from rolling a Roth 401K into a Roth IRA – except both contain post-tax funds.

What does that leave us? Rolling a Roth 401K into a traditional IRA – you cannot do this. And rolling a traditional 401K into a Roth IRA.

The latter has tax implications. Since traditional 401K’s are pre-tax and Roth IRA’s are post tax, you will have to pay taxes on the balance you transfer over. This could be significant and could even push you into a higher tax bracket. Something to definitely be aware of and probably worth consulting with a CPA or certified tax professional beforehand, so you know the tax implications.

The other possible downside is any fees assessed for closing and transferring your 401K. Some 401K administrators may assess this fee, others may not. It’s worth noting that the IRA administrator may cover the transfer fees. In the long run, you will probably save money on fees in rolling a 401K into an IRA, but you should at least know they exist.

How to Roll your 401K into an IRA

1. Get an IRA

If you do not yet have an IRA, get one. Starting an IRA is easy. Check out my post with a list of online brokers for a complete list of IRA fees and how to start an account. Personal faves for low cost IRA’s are Vanguard and TradeKing.

If you already have an IRA, you can simply keep it. If you want to switch to another, you can do that too.

2. Contact your Old 401K Administrator

Ask your old 401K admin about transfer/close fees and ask them what information your new administrator will need to complete the transfer. Make sure they know you are moving your balance to an IRA. Let them know you want a “direct transfer” (aka “trustee-to-trustee” transfer) to your new IRA’s provider – otherwise, they will send you a check that you’ll have to send to the new administrator, which can present delays and other hassles.

3. Contact your IRA Administrator

Ask your existing or new IRA administrator to initiate the direct transfer on your behalf (they should be more than happy to). It is helpful to have a statement from your old administrator handy, or be logged in to that account when you do this.

Give them the information or paperwork that your old administrator requires to transfer the funds.

If, for whatever reason, you are left to initiate the transfer, make sure you know what information you need to give to the old 401K administrator.

4. Invest

Once your funds have been transferred and cleared, it’s time to invest! Note that your rollover does not count towards your IRA contribution limits, so you can still contribute for the year.

That’s it!

401K Rollover Discussion:

  • Have you rolled a 401K into an IRA? How much time did it take? Did you find it easy/difficult?
  • How many 401K’s have you rolled into an IRA?
  • Do you have any other questions about rolling a 401K into an IRA?

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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 10,000+ others by getting FREE email updates. You can also explore every post I have written, in order.

  • Harper says:

    Can this also be performed on a 403(b),and if not is there some process by which I can move these funds into an IRA?

  • Greg says:

    I rolled money from the Teacher Retirement System of Texas (TRS) into a traditional IRA and it worked the same way. The money was in a tax-deferred account and it was a breeze. The paperwork from TRS looked intimidating, but I called Vanguard (where I was rolling it into a traditional IRA) and they made the process incredibly easy and told me exactly which forms I needed to send to whom and they handled all the sticky parts. These companies want your investment dollars, so they make it as simple as possible for you to send your money their way.

    I think from the time I mailed all the appropriate forms, it took only a week or two for the rollover to be complete, though my memory of it from a few years ago is a little hazy.

  • Steve says:

    I left my previous company with a traditional 401k and a money purchase plan, which is a post tax retirement plan. I rolled the 401k into a traditional IRA that I opened for that purpose only and I rolled the money purchase plan into an existing Roth IRA. Both roll overs took about a week to process between financial institutions after the paperwork and a few phone calls were made to each institution in order to insure a smooth transaction. I will continue to fund the Roth as I have been doing, but will allow the traditional to sit untouched for the next 25 years and see what happens.

  • Offain G. says:

    I have a friend who got laid off and she decided to withdraw her funds as cash and I tried so hard to convince her otherwise. But she just couldn’t see the downside to it as she was pretty more worried about her current financial situation.

    Even after trying to explain to her all about her options, she just couldn’t understand it. Maybe I didn’t do a good job at explaining it as clearly as this post but I wish she did some research. I think that’s the problem most of the time. People need to educate themselves and consider all options before making a decision on consolidating their 401(k).

    Great post!

  • Joe says:

    Do you have to close the entire 401k account to roll-over? I’m still at my employer and plan to use their 401k up to the matched amount this year but there is also a chunk of money that I want to get out of there and into my new Roth IRA with Commission-free ETF options!

    Thanks for your advice,

  • Andrew says:

    I’m curious as well re: the option to potentially roll over my accrued 401k funds into an Ira periodically throughout the year? Would this save in fees as well as it being tax deductible? And it is it even a possibility? Thanks


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