To roll over a 401k, ask your former employer’s plan to send the balance directly to the IRA or new employer plan that will receive it, so the check is made payable to the receiving institution and never passes through your hands. That single choice — direct rather than indirect — is what keeps the IRS from withholding 20% and what keeps you off a 60-day deadline. Everything else is paperwork.
Direct Rollover Is the Default You Want
A direct rollover sends your 401k balance straight from the old plan to the new account. The check is payable to the receiving financial institution, not to you, so no taxes are withheld and there is no deadline to redeposit anything.1Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions For most people leaving a job, this is the only method worth considering.
An indirect rollover is the version that causes trouble. The plan writes the check to you personally, and the administrator is required to withhold 20% for federal income taxes before you see the rest. You then have 60 days to deposit the full original amount — the money you received plus the 20% that was withheld — into a qualifying retirement account. That withheld portion has to come from another source. If your $50,000 distribution arrived as a $40,000 check, you need to find $10,000 out of pocket and deposit $50,000 into the new account. You get the withheld amount back when you file your tax return, but only if the full rollover happened.1Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
If those two paths sound uneven, they are. Choose direct.
Step 1: Open or Identify the Receiving Account
Set up the destination before you request anything from your old plan. For an IRA rollover, open a traditional IRA (or Roth, if you’re planning a conversion — more on that below) at the brokerage or bank you want to use. For a rollover into a new employer’s 401k, confirm the new plan accepts incoming rollovers and get its account number and mailing address. Some plans also require a formal letter of acceptance before they’ll take the funds.
If the old 401k and the new IRA happen to sit at the same institution, ask whether they can move the money internally. That usually skips the mailed check entirely.
Step 2: Request the Distribution From Your Old Plan
Contact your former employer’s plan administrator or log into the plan’s portal, and complete a distribution or rollover election form specifying a direct rollover. The line that matters most is the “Payable To” field. For a direct rollover, the check should be made payable to the receiving institution FBO (for the benefit of) your name — for example, “Fidelity Investments FBO Jane Smith.” That phrasing signals a rollover rather than a personal withdrawal.
Specify the type of account receiving the funds, too — traditional IRA, Roth IRA, or another employer plan. The tax treatment of the receiving account has to match the money going in, or you can create an unintended taxable event.
Step 3: Track the Check and Confirm the Deposit
Processing can take several weeks. Some administrators mail the check directly to the new institution. Others mail it to your home for you to forward. A check that arrives at your address made payable to the new institution (not to you personally) is still a direct rollover; just forward it promptly. Once the receiving institution posts the deposit, check that it is coded as a rollover contribution rather than a regular contribution — the two have different tax and limit implications.
The 60-Day Deadline for Indirect Rollovers
If the money did come to you personally, you have exactly 60 days from the date you received the distribution to deposit the full amount into a qualifying retirement account.1Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Miss it by a day and the IRS treats the entire distribution as taxable income for the year. On top of ordinary income tax, you’ll owe a 10% early withdrawal penalty if you’re under 59½, unless you qualify for a specific exception.2Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
The clock starts the day you receive the check or the day the funds hit your bank account, not the day the plan initiates the distribution. Keep proof of that date. If the IRS ever questions the rollover, you’ll need it.
If You Missed the 60-Day Window
A missed deadline is not automatically the end. The IRS allows a self-certification process for people who missed the window for reasons beyond their control. You provide a written certification to the receiving financial institution — the model letter appears in IRS Revenue Procedure 2020-46, and substantially similar language works — and the institution can accept the late rollover without requiring you to first get a private letter ruling from the IRS.3Internal Revenue Service. Accepting Late Rollover Contributions
To qualify, you must certify that the delay was caused by one of the approved reasons:
- An error by the financial institution making or receiving the distribution
- A check that was misplaced and never cashed
- Depositing the funds into an account you mistakenly believed was an eligible retirement plan
- Severe damage to your home
- Death or serious illness of a family member
- Incarceration
- A postal error
- The distributing institution delayed providing information the receiving plan needed
Self-certification is not a guaranteed pass. The IRS can still audit the rollover and deny the waiver if the stated reason doesn’t hold up.4Internal Revenue Service. Rev. Proc. 2020-46 It does let the receiving institution take the money in the meantime, so at least the funds are back inside a tax-sheltered account while any review plays out.
Tax Forms You’ll See
Every rollover produces paperwork, even when nothing is owed. Your old plan administrator issues a Form 1099-R reporting the total amount distributed, with a code indicating whether it was a direct rollover, an indirect rollover, or a plain withdrawal.5Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The receiving institution issues a Form 5498 confirming the rollover contribution and reporting the amount deposited, usually the following May.6Internal Revenue Service. Form 5498 IRA Contribution Informationp>
On your Form 1040, report the distribution and the rollover. For a 401k-to-IRA rollover, the total distribution goes on line 5a and the taxable portion on line 5b. If you rolled the whole amount over, the taxable portion is zero — enter $0 on line 5b and check the rollover box on line 5c.7Internal Revenue Service. Instructions for Form 1040 Hold onto the 1099-R, the 5498, and your deposit confirmation together in case the IRS asks any questions later.
Rolling Pre-Tax 401k Money Into a Roth IRA
You can roll pre-tax 401k funds directly into a Roth IRA, but doing that is a Roth conversion, and the amount you move is added to your taxable income for the year. Roll $80,000 from a traditional 401k into a Roth IRA and you’ll owe income tax on $80,000 at your ordinary rate. No 10% early withdrawal penalty applies to the conversion itself, as long as the money lands in the Roth IRA. If you later withdraw the converted amount before age 59½ and before five years have passed since the conversion, the early withdrawal penalty can apply to that withdrawal.
A conversion can make sense if you expect a higher tax bracket in retirement or want to eliminate future required minimum distributions on those funds (Roth IRAs are not subject to RMDs during the owner’s lifetime). The upfront tax bill can be significant, though, so many people convert in smaller pieces across multiple years rather than moving the whole balance at once.
Splitting After-Tax Contributions
Some 401k plans allow after-tax contributions separate from Roth 401k contributions. If your account holds a mix of pre-tax and after-tax money, a partial distribution must include a proportional share of both. You can’t just pull out the after-tax dollars.8Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
Take a full distribution and direct the funds to two destinations at the same time, though, and the IRS allows a split: the pre-tax money goes to a traditional IRA and the after-tax contributions go to a Roth IRA. Earnings on those after-tax contributions count as pre-tax, so they travel with the traditional IRA portion.8Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans The strategy moves after-tax dollars into a Roth without triggering tax on the pre-tax side. Coordinate with the old plan administrator and both receiving institutions so the split is handled correctly on the way out.
If You’re Already Taking RMDs
Once you reach the age at which required minimum distributions begin (73 for anyone born between 1951 and 1959), you must take that year’s RMD before rolling anything else over. RMD amounts are not eligible to be deposited into another tax-deferred account. Roll one over by mistake and you’ll need to remove it from the new account. You may also face a 25% excise tax on the amount that should have been distributed, dropping to 10% if you correct it within two years.9Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
If you’re leaving a job in a year an RMD is due, take the required distribution first, then roll over the remaining balance. Your plan administrator can calculate the RMD so it isn’t accidentally swept into the rollover.
Company Stock Deserves a Second Look
If your 401k holds employer stock that has appreciated significantly, rolling it into an IRA could cost you more in taxes than distributing it to a regular brokerage account. Net unrealized appreciation (NUA) treatment lets you pay ordinary income tax only on the original cost basis at the time of distribution, with the appreciation taxed later at the lower long-term capital gains rate when you sell.10Internal Revenue Service. Topic No. 412, Lump-Sum Distributions
To qualify, the distribution must be a lump-sum payout of your entire balance from all of that employer’s qualified plans in a single tax year, and it must be triggered by separation from service, reaching age 59½, total and permanent disability (if self-employed), or death.10Internal Revenue Service. Topic No. 412, Lump-Sum Distributions Roll the stock into an IRA instead and the capital gains benefit is gone permanently: eventual IRA withdrawals are taxed as ordinary income on the entire value, cost basis and appreciation alike. For accounts with a large amount of appreciated employer stock, the difference can run into tens of thousands of dollars. Talking to a tax professional before rolling over a 401k with significant company stock is worth the fee.
You May Not Need to Leave the Job
Many plans allow in-service distributions once you reach age 59½, letting you move some or all of your balance to an IRA while you continue working and contributing.2Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Not every plan permits this, so check with your administrator. An in-service rollover can give you a wider range of investments or lower fees while you keep building the balance at work.
One Rule That Doesn’t Apply to You
You may have read about the one-per-year rollover limit and wondered if it blocks your 401k move. It doesn’t. That limit applies only to indirect rollovers between IRAs; it doesn’t reach rollovers from a 401k to an IRA, rollovers between employer plans, or direct trustee-to-trustee transfers between IRAs.1Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions If you’re also planning to shuffle money between existing IRAs the same year, that’s where the rule can bite.