Can I Move My 401k to an IRA While Still Employed?

Yes, you can move money from your 401(k) to an IRA while still employed, provided your employer’s plan allows what’s called an in-service rollover. Federal tax law permits these transfers but doesn’t require plans to offer them, and most that do open the door once you reach age 59½. Done correctly as a direct rollover, the transfer is tax-free and your savings keep growing tax-deferred. Done carelessly, it can trigger income tax, early-withdrawal penalties, lost creditor protection, or required distributions you weren’t expecting.

Check Whether Your Plan Allows It

Start with the Summary Plan Description, the document that spells out what your 401(k) does and does not permit. Federal law gives employers the option to offer in-service distributions but does not require them.¹ Some plans allow in-service rollovers from every contribution source. Others restrict them to employer contributions or after-tax money. A few don’t allow them at all.

The Summary Plan Description is usually posted on your company’s HR or benefits portal. If the language is unclear, call your plan administrator and ask directly which contribution sources are eligible for in-service distribution. Confirming this before you fill out any forms saves you from requesting a transfer the plan will reject.

Age and Which Contributions Can Move

The most common eligibility trigger is reaching age 59½. At that age, federal rules let plans distribute your elective deferrals (the money you contributed from your paycheck) without treating the payout as an early withdrawal.² The statute governing qualified plans says explicitly that a pension trust doesn’t lose its tax-qualified status just because it pays distributions to employees who’ve reached 59½ and are still working.¹

A 401(k) often holds several buckets of money, and your plan can treat each differently:

Elective deferrals, whether pre-tax or Roth, are generally locked until age 59½, plan termination, hardship, disability, or separation from service.²
Employer matching and profit-sharing contributions may be released sooner, sometimes after they’ve been in the account for a set number of years. Only the vested portion is eligible.
Voluntary after-tax (non-Roth) contributions often have the most flexible withdrawal rules and may be available for rollover before 59½.

Service-based triggers for employer money are set by the plan, not by federal law, so waiting periods differ. Ask your administrator for a breakdown of your balance by contribution source and vesting status so you know exactly how much is actually eligible to move.

How to Request the Rollover

Once you’ve confirmed eligibility, you’ll need a distribution or rollover request form from your plan administrator. Open the receiving IRA first so you have the custodian’s name and account number ready. The form will ask how the funds should be delivered and whether you want a direct or an indirect rollover. That choice matters more than any other decision in the process.

Direct Rollover

In a direct rollover, the plan sends your money straight to the IRA custodian. No taxes are withheld, and the funds stay tax-deferred throughout the transfer.³ If the administrator mails a physical check, it will be made payable to the IRA custodian “for the benefit of” you, so it can’t be deposited into a personal bank account. This is the simplest and safest route for most people.

Indirect Rollover

In an indirect rollover, the plan pays the money to you personally. The administrator must withhold 20% of the taxable amount for federal income tax.³ You then have 60 days from the date you receive the funds to deposit the full original amount, including the withheld 20%, into an IRA. You’ll have to use money from another source to replace the withholding. If you only deposit the 80% you received, the withheld portion becomes a taxable distribution and may also face the 10% early-withdrawal penalty if you’re under 59½.⁴ Miss the 60-day window entirely and the whole distribution becomes taxable income for the year.

Spousal Consent

Some 401(k) plans require your spouse’s written, witnessed consent before processing any distribution.⁵ Many plans sidestep this requirement by structuring themselves to pay the full vested balance to a surviving spouse automatically at death; those plans generally don’t require spousal consent for an in-service rollover. Your plan administrator can tell you whether a signature is needed.

Where the Money Lands and What It Costs You

The tax outcome depends on the type of IRA receiving the funds.

Traditional 401(k) to Traditional IRA

The cleanest transfer. Pre-tax contributions and their earnings move into a traditional IRA with no tax due, and the money stays tax-deferred until you withdraw it in retirement.⁶

Traditional 401(k) to Roth IRA

Rolling pre-tax money into a Roth IRA is a taxable conversion. The full amount rolled over gets added to your taxable income for the year. There’s no early-withdrawal penalty on a conversion, but you’ll owe ordinary income tax on the entire sum, which can be a substantial bill on a large balance. The trade-off is tax-free withdrawals later, which can be worthwhile if you expect a higher bracket in retirement.

Splitting After-Tax Contributions

If your 401(k) holds voluntary after-tax (non-Roth) contributions, you can split the rollover. The after-tax contributions themselves can go directly to a Roth IRA tax-free, while the earnings on those contributions, which are pre-tax, go to a traditional IRA.⁷ When distributions go to two destinations at once, the IRS treats them as a single distribution for separating pre-tax and after-tax dollars, which makes the split straightforward.

Watch Out for These Complications

An Outstanding 401(k) Loan

An outstanding loan reduces the amount available for rollover to the net balance (total value minus the loan). More importantly, a plan may be barred from offsetting a loan balance against your account while you’re still actively employed, meaning the loan stays in place and you keep paying it on schedule. If a loan offset does happen, that offset amount is treated as a distribution. You can avoid the resulting tax bill by rolling an equivalent amount into an eligible retirement plan by the due date of your tax return, including extensions.⁸ If you carry a loan, talk to your plan administrator before requesting the rollover.

Employer Stock With Appreciated Value

If your 401(k) holds shares of your employer’s stock that have gained value, rolling them into an IRA can forfeit a significant tax benefit. The net unrealized appreciation (NUA) rule lets you move employer stock to a taxable brokerage account and pay ordinary income tax only on the original cost basis, with the appreciation above that basis later taxed at long-term capital gains rates when you sell.⁴ Roll the stock into an IRA instead and every future withdrawal, including the gains, gets taxed as ordinary income. NUA requires a lump-sum distribution and a qualifying event: reaching 59½, separating from service, disability, or death. You can apply NUA to some shares and roll the rest.

Required Minimum Distributions After 73

If you’re 73 or older, RMD amounts cannot be rolled over into an IRA. They must come out as taxable income, and you have to take the RMD for the year before rolling over any remaining balance.⁹

There’s a subtler problem for employees who are still working at 73. Many 401(k) plans let you delay RMDs from that plan until you actually retire, as long as you don’t own 5% or more of the company.¹⁰ IRAs have no equivalent exception. RMDs from a traditional IRA must begin at 73 whether you’re employed or not. Moving your 401(k) into an IRA while still working can create RMD obligations you wouldn’t otherwise have, shrinking the balance that keeps growing tax-deferred.

Changes to Creditor Protection

Money inside a 401(k) gets broad federal protection under ERISA with no dollar cap. Your employer’s creditors can’t touch plan assets, and in most situations your own creditors can’t either.¹¹

IRA assets are also protected in federal bankruptcy, but only up to an inflation-adjusted cap (roughly $1.7 million for 2025–2028). Amounts rolled over from a 401(k) generally get unlimited bankruptcy protection on top of that cap because they originated in an ERISA plan.¹¹ Outside bankruptcy, IRA creditor protection varies by state. If creditor exposure is a concern, weigh the protection difference before moving money.

How It Gets Reported at Tax Time

Your 401(k) plan provider will issue Form 1099-R by the end of January after the year of the distribution, showing the amount paid out and a distribution code that tells the IRS what kind of transaction it was.¹² A properly coded direct rollover (typically code G) signals that no tax is due. Your IRA custodian will send a confirmation and report the rollover contribution on Form 5498.

Keep both forms along with statements showing the distribution and deposit dates. For an indirect rollover, the 1099-R will show the gross distribution and the 20% withholding; report the rollover on your return and claim credit for the withholding. Good documentation is your protection if the IRS later questions whether the funds were rolled over on time.

1
Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
2
Internal Revenue Service. 401k Resource Guide Plan Participants General Distribution Rules
3
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
4
Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
5
Internal Revenue Service. Notice 2021-03
6
eCFR. 26 CFR 1.402(c)-2 – Eligible Rollover Distributions
7
Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
8
Internal Revenue Service. Plan Loan Offsets
9
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
10
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
11
U.S. Department of Labor. FAQs About Retirement Plans and ERISA
12
Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498