401(k) to IRA rollover considerations

Overview

A rollover IRA generally means an IRA receiving retirement money from another eligible account. It is not an additional annual contribution allowance. Before moving an old workplace plan, compare leaving it in place, moving it to a new employer plan, or moving it to an IRA. Each destination can change costs, investments, and withdrawal options.

Who is this for?

Start by identifying the source: pre-tax plan money, designated Roth plan money, after-tax employee contributions, or a mixture. Also record any outstanding loan, employer stock, current RMD, and whether you are relying on a workplace-plan early-distribution exception. These details can make an otherwise routine transfer unsuitable.

Tax treatment

An eligible direct rollover of pre-tax plan money to a Traditional IRA generally preserves deferral. A move from pre-tax money to Roth generally creates taxable conversion income. Roth plan money needs an eligible Roth destination. An account described as a rollover account is not a promise that every transaction into it is tax-free.

Contribution rules

Eligible rollovers do not use the regular annual IRA contribution allowance. Direct rollovers also avoid the need to replace mandatory withholding on money paid to you. The IRA one-rollover-per-year rule generally concerns IRA-to-IRA 60-day rollovers; it does not apply in the same way to direct trustee transfers or plan-to-IRA rollovers.

Investments and costs

Compare the actual plan menu with the proposed IRA portfolio. Add account charges, fund expenses, advice fees, transaction charges, and cash treatment. Include protections and services you value, such as a plan’s distribution options. A wider investment menu alone is not a complete comparison.

Withdrawals and restrictions

If an eligible employer-plan distribution is paid to you, generally 20% federal withholding applies and you generally have 60 days to complete an eligible rollover. To roll over the entire gross amount, replace the withheld portion using other funds. Required minimum distributions are not eligible rollover distributions.

Worked example and decision checklist

Hypothetical withholding example: a $50,000 eligible pre-tax plan distribution paid to you can produce a $40,000 check after $10,000 withholding. Depositing only $40,000 leaves $10,000 outside the rollover and potentially taxable. A direct rollover can avoid this cash-flow problem. Keep the distribution statement, receiving confirmation, Form 1099-R, and Form 5498, and reconcile them on the tax return even when no tax is ultimately due.

Sources and scope

• Retirement plan rollovers — IRS
• Publication 590-B: IRA distributions — IRS
• Form 8606 and instructions — IRS

Updated October 21, 2026. Prepared with AI assistance; no independent professional review is claimed. Examples are hypothetical. Editorial policy and corrections.

• Retirement plan rollovers — IRS
• Publication 590-B: IRA distributions — IRS
• Form 8606 and instructions — IRS

• A contribution ledger that prevents accidental IRA overfunding
• Why a $50,000 rollover can arrive as a $40,000 check
• A backdoor Roth example: why a new account does not isolate IRA basis
• An IRA fee worksheet: compare the account you will actually use
• Three retirement accounts, three RMD calculations: when withdrawals can be combined
• Roth IRA five-year rules: the earnings clock and the conversion clock answer different questions
• An ineligible IRA contribution is not always fixed by clicking Withdraw
• Delaying the first RMD can put two required withdrawals into one calendar year
• Before funding an owner’s SEP IRA, price the eligible-employee contribution too
• The inherited-IRA fact sheet to complete before choosing a withdrawal schedule