Can You Move a 401(k) to an IRA? Rollover Types and Deadlines

Rolling a 401(k) into an IRA is allowed under federal law and is one of the most common moves in retirement planning. A direct rollover moves the money from your 401(k) plan to an IRA without any tax bill or early withdrawal penalty, and it keeps traditional funds tax-deferred and Roth funds tax-free. You have to be eligible to take a distribution first, and the method you choose to move the money matters more than most people realize.

When You Can Roll Over

You can’t move money out of a 401(k) whenever you want. Federal rules tie eligibility to specific events. The most common one is leaving your job. Whether you resign, get laid off, or retire, separating from the employer that sponsors the plan unlocks your vested balance for distribution.¹

Two other triggers allow rollovers while you’re still employed. If your employer terminates the 401(k) plan, you’ll receive notice and the chance to roll your balance into an IRA or another qualified plan.² And many plans allow in-service withdrawals once you reach age 59½, letting you move money to an IRA while you keep working.³

A hardship withdrawal is different. Some plans allow hardship distributions, but those are not eligible for rollover and will be taxed as ordinary income.¹

Direct Rollover vs. Indirect Rollover

Federal law provides two ways to move money from a 401(k) to an IRA, and the difference between them has real consequences.

Direct Rollover

In a direct rollover, the 401(k) plan sends your money straight to the IRA custodian. The funds never land in your personal bank account. This is the method most people should use, because it sidesteps the mandatory 20% federal tax withholding that applies when money is paid to you personally.⁴ The plan may issue a check made out to the IRA custodian “for the benefit of” your account and mail it to you for forwarding. That still counts as a direct rollover because the check isn’t payable to you.

Rollovers from a 401(k) to an IRA do not count toward the annual IRA contribution limit, so there’s no cap on how much you can move.⁵ Direct rollovers are also exempt from the once-per-year rollover limitation that applies to IRA-to-IRA transfers.⁶

Indirect (60-Day) Rollover

With an indirect rollover, the plan pays the distribution to you. Your plan administrator must withhold 20% for federal taxes before you see a dime.⁷ You then have 60 days from the date you receive the money to deposit the full original balance into an IRA.⁸

Here’s where it gets expensive. To roll over the entire balance, you need to replace that 20% out of pocket. If your 401(k) distributes $100,000, you’ll receive $80,000 after withholding. To avoid taxes and penalties on the missing $20,000, you’d need to come up with $20,000 from other funds and deposit the full $100,000 into the IRA within 60 days. You’ll get the withheld amount back as a tax refund when you file, but you need the cash upfront.

Miss the 60-day deadline and the entire unredeposited amount becomes taxable income. If you’re under 59½, you’ll also owe a 10% early withdrawal penalty on top of your regular income tax rate.⁹ For most people, the direct rollover is the obvious choice.

How to Start the Transfer

Open the receiving IRA before you contact your 401(k) administrator, or confirm your existing one is ready to accept rollover funds. You’ll need the IRA’s account number, the custodian’s full legal name, and the mailing address for incoming rollovers. Your 401(k) plan will require all of this on its distribution form.

The distribution form asks for your Social Security number, current address, the dollar amount or percentage you’re rolling over, and whether you want a direct or indirect rollover. Match the account types carefully. Traditional 401(k) funds go to a traditional IRA. Roth 401(k) funds go to a Roth IRA. Selecting the wrong type can trigger unintended taxes and a correction headache.

Most plan administrators make the form available through an online benefits portal, though some still require a phone call or mailed paperwork. Processing typically takes one to three weeks after the completed form is received. If the plan issues a physical check, it will usually be payable to the IRA custodian, and you’re responsible for forwarding it promptly.

Take Your RMD First If You’re 73 or Older

If you’ve reached age 73, you’re subject to required minimum distributions, and this catches people every year. RMDs are not eligible for rollover. You must take your RMD for the current year before rolling the remaining balance to an IRA. If you accidentally roll over the RMD amount, the IRS treats it as an excess contribution to the IRA, which carries a 6% penalty for every year it remains in the account.¹⁰

The RMD starting age is 73 for people born between 1951 and 1959, and it increases to 75 for those born in 1960 or later.¹¹ If you’re rolling over in the same year you turn 73 and haven’t yet taken your first RMD, coordinate with your plan administrator to distribute the RMD separately before processing the rollover.

What Happens to an Outstanding 401(k) Loan

An unpaid loan balance is one of the most overlooked complications in a rollover. If you leave your job with an outstanding loan, the plan will typically reduce your account balance by the remaining loan amount. That reduction is called a plan loan offset, and the IRS treats it as a distribution.¹²

p>If the offset happens because you left your job or the plan terminated, you get extra time to roll that amount into an IRA. Instead of the standard 60-day window, you have until your tax filing deadline (including extensions) for the year the offset occurs.⁸ For a 2026 offset, that typically means you’d have until October 15, 2027, if you file for an extension.

One distinction matters here. If you simply stop making loan payments while still employed and the plan treats the default as a “deemed distribution,” that amount is taxable and cannot be rolled over at all.¹² The extended deadline applies only to offsets triggered by separation from service or plan termination.

Moving Traditional 401(k) Money to a Roth IRA

You can roll traditional (pre-tax) 401(k) money into a Roth IRA, but this is a conversion, not a simple rollover. The converted amount gets added to your taxable income for the year, and you’ll owe ordinary income tax on the full amount. There’s no 10% early withdrawal penalty on a conversion regardless of your age, but the income tax bill can be substantial.

A $100,000 conversion could push you into a higher tax bracket for the year, and the ripple effects go beyond the obvious. The extra income can trigger the 3.8% net investment income tax, increase your Medicare premiums through the IRMAA surcharge, and phase out deductions you’d normally claim.

If your 401(k) contains both pre-tax and after-tax contributions, any distribution includes a proportional share of each. You can’t cherry-pick only the after-tax dollars for conversion and leave the pre-tax money behind.¹³ This pro-rata rule applies to every distribution from the plan.

Conversions make the most sense in years when your income is unusually low, such as between jobs, during early retirement before Social Security kicks in, or in a year with large deductions. Spreading a conversion over multiple tax years can also keep you from jumping brackets unnecessarily.

Company Stock and Net Unrealized Appreciation

If your 401(k) holds company stock that has significantly appreciated, rolling it into an IRA might be the wrong move. A strategy called net unrealized appreciation (NUA) lets you pay ordinary income tax only on the stock’s original cost basis at distribution, while deferring tax on all the growth until you sell. When you do sell, that growth is taxed at long-term capital gains rates instead of ordinary income rates.¹⁴

The difference can be large. If you bought company stock at $20 per share inside the plan and it’s now worth $120, rolling it into an IRA means every dollar will eventually be taxed as ordinary income when withdrawn. Using NUA, you’d pay ordinary income tax on the $20 cost basis now and long-term capital gains rates on the $100 of appreciation when you sell the shares.

NUA requires a lump-sum distribution of the entire account balance in a single tax year, so you can’t use it for just part of your holdings. The non-stock portion of your 401(k) can still be rolled to an IRA as part of the same distribution. If you hold company stock worth exploring, work through the math before instructing your plan administrator to process a standard rollover.

Rules for an Inherited 401(k)

If the 401(k) you’re rolling over belonged to someone else, the rules depend on your relationship to the deceased participant.

A surviving spouse has the most flexibility. You can roll the inherited 401(k) directly into your own IRA and treat it as yours, with no special restrictions. This resets the RMD schedule to your own age and lets you name new beneficiaries.¹⁵

Non-spouse beneficiaries cannot roll an inherited 401(k) into their own IRA. The funds must go into an inherited IRA instead, and the distribution timeline depends on whether you qualify as an “eligible designated beneficiary.” Eligible designated beneficiaries, which include minor children of the deceased, disabled or chronically ill individuals, and people not more than 10 years younger than the account owner, can stretch distributions over their life expectancy. Everyone else must empty the inherited account within 10 years of the original owner’s death.¹⁵

What Changes Once the Money Is in an IRA

A 401(k) and an IRA are both tax-advantaged retirement accounts, but they’re governed by different parts of federal law. When your money moves, a few things change in ways that matter.

Creditor Protection

Employer-sponsored 401(k) plans are protected by ERISA’s anti-alienation rules, and creditors generally can’t touch that money. There’s no dollar limit on the protection. IRA balances get a different level of protection in bankruptcy. Traditional and Roth IRA contributions are protected up to $1,711,975, adjusted for inflation through April 2028.¹⁶

Money you rolled over from a 401(k) is excluded from that cap. The bankruptcy code specifically exempts rollover contributions from the dollar limit, so your rolled-over 401(k) money retains unlimited bankruptcy protection in the IRA.¹⁶ Keep documentation showing which IRA funds came from a rollover, because you may need to prove the source if you ever file for bankruptcy. Protection from non-bankruptcy creditors, such as lawsuits and judgments, varies by state.

Investment Options and Prohibited Assets

Most 401(k) plans limit you to a menu of 15 to 30 mutual funds chosen by the plan sponsor. An IRA typically gives you access to individual stocks, bonds, ETFs, mutual funds from any provider, and in some cases alternative investments. That broader selection is one of the main reasons people roll over.

IRAs do restrict certain types of assets. You cannot hold life insurance in an IRA, and collectibles such as artwork, antiques, rugs, most coins, gems, stamps, and alcoholic beverages are generally prohibited. The main exceptions are certain U.S. government-minted gold, silver, and platinum coins, and precious metal bullion meeting specific fineness requirements held by an approved trustee.¹⁷ An IRA also cannot hold S-corporation stock, even though a 401(k) trust can. If your 401(k) held S-corp shares, they’ll need to be sold before the rollover.

Tax Forms After the Rollover

A completed rollover generates two tax forms, even when no tax is owed.

Your old plan’s administrator will send you a Form 1099-R reporting the distribution. For a direct rollover, Box 7 will show Code G, which tells the IRS the money went straight to another retirement account. The IRA custodian will issue Form 5498 reporting the incoming rollover contribution in Box 2.¹⁸

On your federal tax return, report the gross distribution amount even though the taxable amount is zero for a direct like-to-like rollover. Skipping this line is a common mistake that can trigger an IRS notice asking why you didn’t report the distribution. Keep both forms along with any rollover confirmation letters from your IRA custodian. The IRS generally requires records for at least three years, though holding them for six years provides a wider safety margin if underreported income is ever questioned.¹⁹

If You Miss the 60-Day Deadline

If you took an indirect rollover and the 60-day window closed before you deposited the funds, you may still have options. The IRS allows a self-certification process for certain hardship situations, and there’s no fee to use it.²⁰

To qualify, the delay must have been caused by circumstances like hospitalization, disability, serious illness, incarceration, postal error, or restrictions imposed by a foreign country. You complete a model letter provided in Revenue Procedure 2016-47 certifying the reason for the delay and present it to the IRA custodian receiving the late rollover. The deposit must be made as soon as practicable after the reason for the delay no longer applies, generally within 30 days.²⁰

Self-certification isn’t automatic approval. It shifts the risk to audit: the IRS can later examine your return and determine you didn’t actually qualify. If the IRS has previously denied you a waiver through a private letter ruling, the self-certification option is off the table. For situations that don’t fit the listed hardship reasons, you can still request a private letter ruling, though these come with a filing fee and no guarantee of success. The simplest way to avoid the problem is to use a direct rollover in the first place.

1
Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules
2
eCFR. 29 CFR 2550.404a-3 – Safe Harbor for Distributions From Terminated Individual Account Plans
3
Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
4
Office of the Law Revision Counsel. 26 USC 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
5
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
6
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
7
eCFR. 26 CFR 31.3405(c)-1 – Withholding on Eligible Rollover Distributions
8
Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
9
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
10
Internal Revenue Service. Publication 590-B – Distributions From Individual Retirement Arrangements (IRAs)
11
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
12
Internal Revenue Service. Retirement Plans FAQs Regarding Loans
13
Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
14
Internal Revenue Service. Net Unrealized Appreciation in Employer Securities Notice 98-24
15
Internal Revenue Service. Retirement Topics – Beneficiary
16
Office of the Law Revision Counsel. 11 USC 522 – Exemptions
17
Internal Revenue Service. Investments in Collectibles in Individually Directed Qualified Plan Accounts
18
Internal Revenue Service. Instructions for Forms 1099-R and 5498
19
Internal Revenue Service. How Long Should I Keep Records
20
Internal Revenue Service. Retirement Plans FAQs Relating to Waivers of the 60-Day Rollover Requirement