Can I Transfer My Pension? Rollovers, Taxes, and Penalties

Yes, in most cases you can transfer your pension or other retirement plan balance into another qualified retirement account without paying taxes, provided you use the right method and meet the federal deadlines. The safest route is a direct rollover, where the money moves straight from your current plan to the new account and never passes through your hands. If the distribution is paid to you first, the plan withholds 20% for taxes and you have 60 days to redeposit the full amount, or the shortfall becomes taxable income.¹ Whether your transfer stays tax-free depends on the type of plan, how you receive the money, and whether you meet the timing rules.

What Kind of Pension or Plan You Have Matters

Federal law allows rollovers between most tax-advantaged retirement accounts: 401(k), 403(b), governmental 457(b), traditional IRA, Roth IRA, SEP-IRA, and SIMPLE IRA. The IRS publishes a rollover chart showing which combinations are permitted.²

The rules that most often affect a searcher trying to move a pension:

A 401(k), 403(b), or governmental 457(b) can generally roll into a traditional IRA, another employer plan of the same or different type, or a Roth IRA. Rolling pre-tax money into a Roth triggers income tax on the amount converted.
A traditional IRA can roll into another traditional IRA, a SEP-IRA, a SIMPLE IRA (after a two-year waiting period), a qualified employer plan, or a Roth IRA.
A Roth IRA can only roll into another Roth IRA. It cannot go into a traditional IRA or an employer plan.
A SIMPLE IRA can only roll into another SIMPLE IRA during its first two years. After that, it can roll into most other plan types.²
If your employer offers a lump-sum option from a traditional defined benefit pension, that lump sum is generally an eligible rollover distribution and can move into an IRA or another qualified plan.³

One important boundary: a nonqualified deferred compensation plan governed by Section 409A cannot be rolled over. These plans prohibit accelerating the timing of payments, which blocks any transfer into an IRA or qualified plan.⁴ Distributions from nonqualified plans are taxed as earnings first, rather than the pro-rata rules used for qualified plans.³

You also need to qualify for a distribution before anything can be rolled over. Usually that means separating from the employer. Some plans allow in-service distributions at a certain age (often 59½), but that depends on plan terms.¹

Direct Rollover or Indirect Rollover

The single most important choice is how the money leaves your old plan.

Direct Rollover

You ask the plan administrator to send the funds straight to the receiving plan or IRA. The money never lands in your bank account. Nothing is withheld, and no 60-day deadline hangs over you.¹ Even a paper check counts as a direct rollover if it is made payable to the new plan or IRA rather than to you personally.

Indirect Rollover

The plan pays the distribution to you. From an employer plan, the administrator must withhold 20% of the taxable amount for federal income tax, even if you plan to redeposit every cent.⁵ You then have 60 days from the day you receive the money to deposit it into another eligible plan or IRA.⁶

The 20% withholding is where people get hurt. Say your distribution is $50,000. The plan sends you $40,000 and forwards $10,000 to the IRS. To complete a full tax-free rollover, you have to deposit the full $50,000 in the new account within 60 days, which means finding $10,000 from somewhere else to cover the withheld amount. If you deposit only the $40,000 you received, the missing $10,000 is treated as a taxable distribution and can also carry a 10% early withdrawal penalty if you are under 59½.¹

For IRA-to-IRA indirect rollovers, the default withholding is 10% instead of 20%, and the 60-day rule still applies. A trustee-to-trustee transfer avoids both problems.

Does Your Spouse Have To Sign Off

If you are in a defined benefit pension or a money purchase plan, federal law requires your spouse’s written consent before you can waive the default survivor benefit (a qualified joint and survivor annuity) and take a lump sum or rollover instead. The signature must be witnessed by a plan representative or a notary, and the consent has to acknowledge the effect of giving up the survivor benefit.⁷ Many 401(k) and other defined contribution plans also require spousal consent if you want to name someone other than your spouse as beneficiary.⁸ Skipping this step can invalidate the distribution request or create disputes later.

Taxes on the Transfer

When the Transfer Is Tax-Free

Moving money to the same type of account, such as a traditional 401(k) into a traditional IRA, is not taxable if the funds reach the new account through a direct rollover or within the 60-day indirect rollover window.⁶ You still report the distribution on your tax return, but the taxable amount is zero.

Rolling Into a Roth

You can roll pre-tax funds from a traditional 401(k), 403(b), or traditional IRA into a Roth IRA, but the transferred amount is included in your gross income and taxed as ordinary income for that year.⁵ Many people spread conversions across several tax years to manage the impact.

The 10% Early Withdrawal Penalty

If a distribution is not rolled over on time, the taxable portion is subject to regular income tax plus a 10% additional tax if you are under 59½.⁹ Exceptions include death, total disability, distributions under a qualified domestic relations order, and distributions after separation from service in or after the year you turn 55 (50 for certain public safety employees).¹⁰

Distributions You Cannot Roll Over

Some payments are excluded from rollover treatment by law, no matter the method:

Required minimum distributions. Once you reach age 73 under current rules through 2032, RMDs must come out and cannot be deposited into another retirement account. Rolling one over triggers a 6% excess contribution penalty.¹¹
Hardship distributions from a 401(k) or similar plan.¹
A series of substantially equal periodic payments made over your life expectancy or the joint life expectancy of you and your beneficiary.
A plan loan offset treated as a distribution has its own extended deadline: the tax-filing due date (including extensions) for that year, rather than 60 days.⁶

The Once-a-Year Rule for IRA Indirect Rollovers

If you use a 60-day indirect rollover to move money between IRAs, you are limited to one such rollover in any 12-month period. A second IRA distribution rolled over within that window is included in gross income in full and can also trigger the 10% penalty.¹² Trustee-to-trustee transfers are not subject to this limit because you never receive the funds personally.¹ The one-per-year cap does not apply to rollovers from an employer plan to an IRA.

How To Complete the Transfer

The mechanics involve you, the current plan, and the receiving institution. Doing them in order avoids delays and tax surprises.

Open the receiving account first. Set up the IRA or confirm enrollment in the new employer plan so the funds have somewhere to land. Get the account number and the institution’s mailing address or wire instructions.
Contact your current plan administrator. Request an eligible rollover distribution and specify a direct rollover. If the distribution is $200 or more, the administrator must give you a written explanation of your rollover options.¹
Get spousal consent if your plan is a defined benefit pension or money purchase plan.⁷
Review the paperwork. Check your name, date of birth, distribution amount, and that the rollover is coded as a direct transfer. Small errors cause most delays.
Confirm receipt with the new institution. Make sure the full amount arrived and was posted as a rollover contribution, not a new contribution that would count against annual limits.
Keep the records. Save the distribution request, Form 1099-R from the distributing plan, and Form 5498 from the receiving institution.

Most direct rollovers finish within one to three weeks once paperwork is in. If the plan has to liquidate investments before paying out, expect longer. With an indirect rollover, the 60-day clock starts on the day you receive the distribution, and the IRS will only waive that deadline in narrow situations such as casualty, disaster, or events beyond your reasonable control.⁶

Reporting the Rollover on Your Return

Even a fully tax-free rollover generates forms. The distributing plan files Form 1099-R showing the gross distribution in Box 1. For a direct rollover, Box 2a (taxable amount) shows $0 and Box 7 uses code G. A rollover from a designated Roth account to a Roth IRA uses code H.¹³

The receiving IRA custodian or plan trustee reports the incoming rollover on Form 5498, Box 2. For 2025 activity, the deadline for the receiving institution to file Form 5498 and furnish your statement is June 1, 2026.¹³ Hold on to both forms. If the IRS ever asks whether a distribution was properly rolled over, Form 5498 is your proof.

On your Form 1040, list the full distribution amount and then the taxable portion, which is $0 for a completed rollover. Writing “Rollover” next to the applicable line helps the IRS match the two events and avoid an unexpected bill.

1
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
2
Internal Revenue Service. Rollover Chart
3
Internal Revenue Service. Publication 575, Pension and Annuity Income
4
Office of the Law Revision Counsel. 26 U.S. Code 409A – Inclusion in Gross Income of Deferred Compensation Under Nonqualified Deferred Compensation Plans
5
Internal Revenue Service. Topic No. 413, Rollovers From Retirement Plans
6
Office of the Law Revision Counsel. 26 U.S.C. 402 – Taxability of Beneficiary of Employees Trust
7
Office of the Law Revision Counsel. 26 U.S. Code 417 – Definitions and Special Rules for Purposes of Minimum Survivor Annuity Requirements
8
U.S. Department of Labor. FAQs About Retirement Plans and ERISA
9
Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
10
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
11
Internal Revenue Service. Publication 590-B, Distributions From Individual Retirement Arrangements
12
Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts
13
Internal Revenue Service. Instructions for Forms 1099-R and 5498