Should You Roll Your 401(k) Into an IRA?
Understanding your options when you leave an employer-sponsored retirement plan.
Leaving an employer can raise important questions about what to do with the retirement savings you've accumulated in your 401(k). A rollover to an IRA may be one option, but it isn't the only one.
Understanding the differences between your available choices—including taxes, investment options, fees, account features, and access to your money—can help you have a more informed conversation about your retirement planning.
Educational information only. This material is not intended to provide individualized investment, tax, or legal advice. Individual circumstances vary.
Understand Your Options
What Is a 401(k) Rollover?
A rollover generally involves moving eligible retirement assets from one retirement plan to another eligible retirement plan or IRA. Understanding how the process works can help you avoid unnecessary complications.
Identify the Accounts
First, understand where your retirement savings are currently held and which receiving accounts may be eligible to accept a rollover.
Understand the Transfer Method
A rollover can often be completed as a direct rollover, where eligible assets are transferred directly from one retirement account to another.
Review the Tax Considerations
The tax treatment can depend on the type of distribution, account, and rollover method. Understanding the applicable rules before moving money is important.
Evaluate the Receiving Account
If assets are moved, consider the investment choices, fees, services, withdrawal provisions, and other features of the receiving account.
What About the 60-Day Rollover Rule?
In certain circumstances, a retirement-plan distribution may be paid to the account owner rather than transferred directly to another retirement account. When an eligible distribution is received by the account owner, the rollover generally must be completed within the applicable 60-day period.
Different withholding and tax rules can apply when a distribution is paid directly to you. Not every retirement distribution is eligible for rollover, so the specific circumstances matter.
Retirement plan and IRA rollover rules can be complex and may change. Consider reviewing the applicable IRS rules and consulting qualified tax or financial professionals regarding your individual circumstances.
Why Consider an IRA Rollover?
An IRA rollover may provide different account features or investment choices than an employer-sponsored retirement plan. But those differences should be considered alongside the features and costs of the plan you're leaving.
Investment Choices
An IRA may provide access to investment options that differ from those available through an employer-sponsored retirement plan.
What to compare Available investments, diversification, and restrictions.Account Consolidation
Someone who has accumulated retirement accounts with multiple employers may want to understand whether consolidating certain accounts could simplify account management.
What to compare Account administration, statements, services, and organization.Retirement Planning
An IRA may become one component of a broader retirement income strategy, depending on an individual's circumstances and objectives.
What to consider Income needs, withdrawals, taxes, and other retirement resources.Services & Support
Different retirement accounts may offer different levels of investment access, account services, educational resources, or professional support.
What to compare Services, costs, available guidance, and account administration.An IRA isn't automatically the better choice.
A former employer's retirement plan may offer features, investment options, costs, or protections that are important to understand before moving assets.
The goal is not simply to compare an IRA with a 401(k) in isolation. It's to understand the differences between the available choices and how those differences may relate to your circumstances.
401(k) vs. IRA: What Should You Compare?
A rollover decision involves more than deciding where an account will be held. The features, costs, investment choices, services, and rules associated with each option can be different.
Before making a decision, consider comparing the details of your existing plan with the IRA or other retirement account you're considering.
Look beyond the account label.
Two retirement accounts can both be described as "retirement accounts" while having very different investment options, costs, services, rules, and features. Looking at those details can provide a more complete picture of your available choices.
What About Fees and Expenses?
Cost is one consideration when comparing a former employer's retirement plan with an IRA or another retirement account. But looking only at one fee may not provide the full picture.
Different accounts can charge for different services, investments, or administrative functions. Understanding what you're paying for can help you make a more informed comparison.
Investment Expenses
Investments available through a retirement plan or IRA can have their own expenses. Compare the costs associated with the investments available under each option.
Account & Administrative Fees
Retirement accounts may have administrative, custodial, recordkeeping, or other account-level fees. Review how those costs are assessed and what services they support.
Transaction & Service Costs
Depending on the account and investments selected, there may be transaction-related costs or charges for particular services.
What Do the Fees Provide?
A lower stated fee does not necessarily tell you everything about an account. Consider the services, investment choices, features, and support associated with the costs.
Questions worth asking
What fees does my current retirement plan charge?
What fees would apply to the IRA or other account?
What investment expenses would apply?
What services are included with the applicable fees?
Don't Overlook the Tax Considerations
How a retirement distribution is handled can affect its tax treatment. Understanding the difference between a direct rollover and a distribution paid to you can help you ask the right questions before moving retirement assets.
Direct Rollover
With a direct rollover, eligible retirement assets are generally transferred directly from one retirement plan or account to another eligible retirement plan or IRA.
A direct rollover generally avoids having the distribution paid directly to you and can help avoid mandatory federal withholding that may apply to certain distributions paid to the account owner.
Distribution Paid to You
If an eligible retirement-plan distribution is paid directly to you, federal income-tax withholding generally applies at 20% for many employer-plan distributions.
If you intend to roll over the full amount, you may need to replace the amount withheld with other funds in order to complete the rollover for the full distribution amount.
The 60-Day Rule
In certain circumstances, an eligible distribution received by you may be rolled over to another eligible retirement account if the rollover is completed within the applicable 60-day period.
Not every retirement distribution is eligible for rollover. Required minimum distributions and certain other distributions generally cannot be rolled over.
Tax rules can depend on your circumstances.
The tax treatment of a retirement transaction can depend on the type of account, the type of distribution, how the transaction is completed, and other individual circumstances.
Before initiating a rollover or taking a distribution, consider reviewing the applicable plan documents and discussing your circumstances with qualified tax or financial professionals.
Educational reminder: This information is provided for educational purposes and is not individualized tax or investment advice.
Questions to Ask Before Rolling Over a 401(k)
A rollover can involve several financial, tax, and account-related considerations. Asking the right questions can help you understand the differences between your available options.
What are my options?
Can I leave the money in my former employer's plan, move it to a new employer's plan, roll it into an IRA, or take a distribution?
What investment choices are available?
How do the investment choices in my current plan compare with those available through the account I'm considering?
What fees and expenses apply?
What would I pay under each option, including investment expenses, administrative fees, and other account-related costs?
Are there features I could lose?
Does my existing employer plan provide any features, services, or provisions that I should understand before moving the assets?
How would taxes be handled?
Would the transaction create current tax consequences or withholding requirements? Would a direct rollover be available?
How would withdrawals work?
What rules would apply when I eventually need to access the money? Are there differences between the available account options?
What about required distributions?
How could required minimum distribution rules apply to the account based on my age, account type, and circumstances?
What should I discuss with a professional?
Are there investment, tax, legal, or retirement-income considerations that warrant professional guidance before taking action?
You don't have to answer every question at once.
The purpose of this checklist is to help you identify the areas that may be worth exploring. Your plan documents, account information, and individual circumstances can provide important details.
When Professional Guidance May Be Helpful
A retirement rollover can involve investment, tax, account, and retirement-income considerations. Understanding those considerations before taking action can help you make a more informed decision.
You Have Multiple Retirement Accounts
If you've accumulated retirement savings through several employers, understanding how the accounts fit together may be useful as you evaluate your options.
You're Approaching Retirement
As retirement approaches, questions about income, withdrawals, taxes, Social Security, and longevity may become increasingly important.
You're Unsure About the Tax Rules
Different types of distributions and rollover methods can have different tax treatment. A qualified tax professional can help address tax questions specific to your situation.
You're Comparing Several Options
If you're deciding between leaving assets in a former employer plan, moving them to a new plan, using an IRA, or another option, a structured comparison can help clarify the questions you need to explore.
The goal is understanding—not rushing a decision.
Retirement decisions can have long-term implications. Taking time to understand your available choices, the applicable rules, and the differences between accounts can help you approach the decision with greater clarity.
Have Questions About Your Retirement Options?
Deciding what to do with an old 401(k) can involve several considerations, including taxes, fees, investment choices, withdrawal rules, and the features available through your existing plan.
Learning about your options can help you have a more informed conversation about what may fit your circumstances.
Explore Your Retirement QuestionsEducational information only. This page is not intended to provide individualized investment, tax, or legal advice. Rollover decisions can involve individual circumstances and tax considerations. Consider consulting qualified tax, legal, or financial professionals regarding your situation. Rules and tax treatment may change.