Should I roll over my 401(k) to an IRA?

In most cases, yes. An IRA gives you more investment options, typically lower fees, and easier management. The main exception is if you plan to do backdoor Roth conversions — rolling pre-tax 401(k) money into a Traditional IRA triggers the pro-rata rule.

What is the difference between a direct and indirect rollover?

A direct rollover sends funds from your 401(k) directly to the new account, with no withholding and no deadline. An indirect rollover sends you a check with 20% withheld; you have 60 days to deposit the full amount. Always use a direct rollover.

Can I roll a 401(k) into a Roth IRA?

Yes, but it's a taxable event. The entire pre-tax amount is added to your income for the year. This can make sense in a low-income year, but the tax bill can be substantial for large balances.

How long do I have to roll over a 401(k)?

There is no deadline for a direct rollover. For an indirect rollover, you have 60 calendar days from receiving the distribution to deposit the funds into the new account.

401(k) Rollovers & IRA Rules: What to Know Before You Move Your Money

When you leave a job, your 401(k) doesn’t have to stay behind. A rollover moves your retirement savings from an employer plan to an IRA or a new employer’s plan — preserving the tax advantages and often giving you more investment options and lower fees. The IRS’s rollover rules cover all eligible plan types and the 60-day requirement in detail. The rules matter, though: a wrong move can trigger taxes or penalties.

Retirement account overview showing 401k, Traditional IRA, and Roth IRA balances and contribution limits — A couple's 401(k)s, IRAs, Roth IRAs, HSAs and taxable accounts in one list.

Rollover Options When You Leave a Job

When you separate from an employer, you generally have five options for your 401(k):

Roll over to a Traditional IRA: the most common choice. It preserves tax-deferred status and opens up the full range of investments.
Roll over to a Roth IRA: a taxable event (you pay income tax on the full amount), but future growth is tax-free.
Roll over to your new employer’s 401(k): keeps everything in one place if the new plan accepts rollovers and has good fund options.
Leave it in the old 401(k): allowed if the balance exceeds $7,000 (plans can force out smaller balances). No action required, but you lose the ability to make new contributions.
Cash out: almost never the right move. You’ll owe income tax plus a 10% early withdrawal penalty if you’re under 59½.

Direct Rollover vs Indirect Rollover

The difference matters:

Direct rollover (trustee-to-trustee): Your 401(k) custodian sends the funds directly to your new IRA or 401(k) custodian. No withholding, no tax consequences, no deadline pressure. Use this one.

Indirect rollover (60-day rollover): The 401(k) custodian sends you a check. Your old employer must withhold 20% for federal taxes. You have 60 days to deposit the full original amount (including the 20% withheld, which you must replace from your own funds) into the new account. If you miss the deadline or deposit less than the full amount, the shortfall is treated as a distribution, subject to income tax and possibly the 10% penalty.

Rule: You’re allowed only one indirect IRA-to-IRA rollover per 12-month period. Direct rollovers and 401(k)-to-IRA rollovers are exempt from this limit.

Traditional 401(k) to Traditional IRA

This is the simplest rollover. Pre-tax money stays pre-tax, no tax event is triggered, and your money keeps growing tax-deferred. You pay income tax when you take distributions in retirement.

Advantages:

Access to the full investment universe (individual stocks, bonds, ETFs, low-cost index funds)
Typically lower fees than employer plans
Consolidation of multiple old 401(k)s into one account
Easier to manage Roth conversions from a single Traditional IRA

Watch out for:

Pro-rata rule: If you plan to do backdoor Roth conversions later, having a Traditional IRA with pre-tax money will trigger the pro-rata rule (see our Backdoor Roth guide). Consider rolling into your new employer’s 401(k) instead to keep your IRA clean.
Creditor protection: 401(k)s have unlimited federal creditor protection under ERISA. IRAs have protection up to ~$1.5 million in bankruptcy but may have less protection under state law.

Traditional 401(k) to Roth IRA

Rolling pre-tax 401(k) money directly into a Roth IRA is a taxable conversion. The entire rollover amount is added to your ordinary income for the year. That works well in the right year and is costly in the wrong one.

When it makes sense:

You’re in a low-income year (job transition, sabbatical, early retirement)
You have enough cash outside the rollover to pay the tax bill
You want to start the Roth 5-year clock early
Your marginal rate this year is lower than your expected rate in retirement

When it doesn’t:

The rollover would push you into a significantly higher bracket
You’d cross an IRMAA threshold (triggering Medicare premium surcharges)
You don’t have cash to pay the taxes (using rollover funds to pay taxes reduces the amount that compounds tax-free)

Roth 401(k) to Roth IRA

If your 401(k) has a Roth component (after-tax contributions with tax-free growth), rolling to a Roth IRA is tax-free. Since 2024 (SECURE 2.0), neither Roth 401(k)s nor Roth IRAs have RMDs, so the reasons to roll over are wider investment choice, simpler account management, and the Roth IRA’s more flexible withdrawal rules.

After-Tax 401(k) Contributions

Some 401(k) plans allow after-tax contributions beyond the employee deferral limit. These differ from Roth contributions: the contributions are after-tax, but the earnings grow tax-deferred.

When rolling over, you can split the after-tax contributions into a Roth IRA (tax-free, since you already paid tax on them) and the earnings into a Traditional IRA (tax-deferred). This is the mega backdoor Roth strategy, and it has to be done as a direct rollover.

The 5-Year Rule for Roth Rollovers

Roth IRA conversions from a 401(k) have their own 5-year clock. Each conversion must season for 5 years before the converted amount can be withdrawn penalty-free (if you’re under 59½). This is separate from the 5-year rule for Roth IRA earnings.

If you’re over 59½, this rule doesn’t apply — you can access converted funds immediately.

Net Unrealized Appreciation (NUA)

If your 401(k) holds employer stock, you may be able to use the NUA strategy. Instead of rolling the stock into an IRA, you distribute it to a taxable brokerage account. You pay ordinary income tax only on the cost basis of the shares, and the appreciation (NUA) is taxed at the lower long-term capital gains rate when you sell.

NUA makes sense when:

The stock has appreciated significantly
Your cost basis is low relative to the current value
You plan to sell the stock relatively soon

Common Mistakes

Forgetting the 20% withholding on indirect rollovers. If your 401(k) distributes $100,000 via check, you receive $80,000. You must deposit $100,000 into the IRA within 60 days — the extra $20,000 comes from your own pocket (you get it back as a tax credit when you file).
Multiple indirect rollovers in a 12-month period. The second one is treated as a taxable distribution.
Rolling pre-tax money into a Traditional IRA when you plan backdoor Roth conversions. The pro-rata rule will make future conversions partially taxable.

How cinder.fi Helps

cinder.fi models your rollover options within your full retirement projection. You can compare leaving funds in a 401(k), rolling to a Traditional IRA, and converting to Roth, with the tax impact including federal brackets, state tax for all 50 states, IRMAA thresholds, and Social Security taxation. The withdrawal optimizer helps you decide which accounts to draw from first in retirement.

Plan your rollover strategy: try cinder.fi free.

April 2, 2026 · 5 min read