How to roll over your 401(k) to IRA

1 min readLast updated November 10, 2023by Rachel Carey

Rolling your 401(k) over to an IRA account can positively impact your retirement funds. But it’s important to get it right. We take a closer look at how to get it right and what you need to do.

Why roll over your 401(k) to an IRA? 

When a 401(k) account isn’t delivering the right returns, many employees start to consider whether moving their contributions into a personalized IRA account could be a better option, and there are a few reasons why it may well be.  

401(k) accounts often lack flexibility when choosing your investments. While you’ll likely be given a choice on which fund to invest in, this is usually from a pre-selected number of options – not one you have selected personally.  

Also, 401(k) accounts often have attached fees and charges; moving your funds to an IRA account lets you find a much cheaper option with fewer fees and costs attached. 

How much of your 401(k) funds can you roll over into an IRA? 

When rolling your funds over, there can often be some confusion about how much you can move.  

The first thing to know is that there is no annual limit to the amount of money you can transfer into a Roth IRA account. You can transfer the whole amount without limit when you roll your funds over. 

However, it is important to note that the amount rolled over is taxable. Money rolled into a Roth IRA account also needs be held within the account for five or more years before it is withdrawn to avoid a penalty.   

It is also important to remember that there are annual limits to your contributions to a 401(k) or an IRA. So, while rolling your money over doesn’t count as a contribution, remember that you can only contribute an annual maximum of $6,500 on top of your rollover amount.  

When should you roll over your 401(k)? 

You have two options for rolling over your money.  

The first is to create a direct rollover. This means that rather than the funds being paid to you to make the transfer, your 401(k) provider directly transfers your funds into your new IRA account.  

Alternatively, your 401(k) funds can be paid to you. In this case, you have 60 days from receiving the cash or assets from your 401(k) to transfer into another fund – an IRA or a different 401(k) plan.  

How to roll your 401(k) over 

If you’re ready to roll your 401(k) over, here is a step-by-step guide on how exactly to do it.  

1. Choose your rollover destination 

The first step is figuring out where you want to roll your funds.  

As mentioned above, you could do this manually or create an automatic transfer. In either case, you should know before you roll your money over where you will be moving it to. 

When weighing up your options, pay close attention to any rollover fees and ongoing management fees that could erode your savings. Speaking to a financial advisor could help you assess your options and decide what option can help you achieve your financial goals.  

2. Contact your current and new provider 

You will need to inform your current 401(k) provider that you intend to roll your funds over and may need to include some details and contact information about your new IRA provider.  

Giving notice in advance will help you avoid early withdrawal fees and charges. Some providers may not let you do a direct rollover, so be prepared to do a manual transfer if you have to.  

3. Contribute as normal 

Within approximately 60 days, you should be set up with your new IRA and can continue contributing as normal. Remember that your rollover didn’t count as a contribution, so you can continue contributing to your IRA up to its annual limit.  

Five advantages of rolling your 401(k) over to an IRA 

1. Investment flexibility 

One of the major advantages of a 401(k) rollover is the greater level of flexibility that an IRA can give you. Whether you’re looking for a higher-growth option or want to invest in something else altogether, moving your 401(k) into an IRA puts you in control of your savings.  

2. Fees 

Many 401(k) accounts come with fees that can affect the value of your savings. Moving your funds into an IRA allows you to find a different account with fewer charges and fees, helping you preserve the value of your account.  

3. Consolidation 

If you have worked for several different employers, you may have some outstanding 401(k) accounts attached to each role. Rather than risk forgetting about some and missing out on your retirement funds, rolling your funds over can be a good opportunity to consolidate your 401(k) accounts into a single, more rewarding account. 

4. Planning flexibility 

IRA accounts often come with more flexible payout options. Many allow you to withdraw some funds penalty-free in certain circumstances, and should you opt for a Roth IRA, your money will already be tax-optimized, enabling you to plan your future more freely.  

5. Estate planning 

With an IRA, you can name multiple beneficiaries to your cash and assets. For this reason, an IRA can be more convenient when planning your estate.  

There are many reasons to consider rolling a 401(k) over into an IRA. From fewer fees and charges to consolidating your outstanding money into a single account, rolling your money over into an IRA is just one way you can plan to reach your financial goals. While there are advantages, rolling over your account isn’t for everyone. It could leave you with higher fees and reduced creditor protection. A financial advisor can help you make the best choice based on your specific financial goals and circumstances.

Find your next advisor on Unbiased. 

Senior Content Writer

Rachel Carey

Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.