Moving a 401(k) to an IRA: the steps
A rollover moves 401(k) money into an IRA without a cash-out. The method you pick decides the withholding, the deadlines and the paperwork.
| Method | Upside | Downside |
|---|---|---|
| Direct rollover | ✓ No 20% withholding | ✗ Both providers must coordinate the transfer. |
| Indirect rollover | ✓ The payment comes to you | ✗ 20% is withheld. Deposit within 60 days, or it can become taxable. |
Source: https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions and https://www.finra.org/investors/learn-to-invest/types-investments/retirement/401k-investing/401k-rollovers
Follow the steps in order
- Open the receiving IRA.
- Request a direct rollover from the plan.
- Confirm the funds arrived and check the amount.
- Keep the confirmation for your tax records.
Know the 60-day rule
An indirect rollover must reach the new account within 60 days of receipt. A late rollover can become taxable.
Plan for the 20% withholding
An indirect rollover has 20% withheld. To roll over the full amount, add that 20% from other savings before the 60-day window closes.
Source: https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions and https://www.finra.org/investors/learn-to-invest/types-investments/retirement/401k-investing/401k-rollovers
Compare timing with both providers
Timing depends on each plan and provider. Ask both for written steps and dates before you start, and keep copies.
Name beneficiaries on the new IRA
Beneficiary forms on the IRA are separate from the 401(k). Review them after the move, since each account keeps its own.
Common questions
How long does a 401(k) rollover take?
No fixed time applies. Each plan and provider sets its own steps, and paperwork often adds time. Ask both for dates in writing.
What does the new provider need from me?
Usually an account application, identification and the old plan's contact details. The new provider can list the exact forms it requires.
Does the old plan send the money to me?
Not with a direct rollover. The plan sends the money to the IRA provider, so no withholding applies. An indirect payment comes to you, and 20% is withheld from it.
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