What Can I Roll My 401(k) Into? IRAs, New Plans, and Rules

You can roll a 401(k) into a traditional IRA, a Roth IRA, a new employer’s 401(k) or 403(b), a governmental 457(b) plan, a SEP-IRA, or — after a two-year waiting period — a SIMPLE IRA.¹ Which one makes sense depends on whether you have a new job, whether the money in your 401(k) is pre-tax or designated Roth, and whether you want to change its tax treatment along the way. Each destination has its own rules, and some rollovers trigger an immediate tax bill while others do not.

Traditional IRA

A traditional IRA is the most common landing spot. Moving pre-tax 401(k) money into a traditional IRA is not a taxable event — the funds keep their tax-deferred status and continue growing without an immediate tax bill.² You open the IRA at a bank, brokerage, or other financial institution rather than through an employer, which usually means a wider menu of investments than your 401(k) offered.

A traditional IRA accepts rollovers from virtually any employer-sponsored retirement plan, including 401(k), 403(b), and governmental 457(b) plans.¹ One tradeoff: once pre-tax money sits in a traditional IRA, it can be harder to move it into a future employer’s plan, since some plans do not accept incoming IRA rollovers. If you think you might want to consolidate everything into a future employer’s 401(k), rolling directly into that plan — rather than parking the money in an IRA first — preserves that flexibility.

Roth IRA

A Roth IRA is also an option, but the tax consequences depend on what kind of money you are moving. Designated Roth contributions inside your 401(k) (the portion you already paid tax on) transfer directly into a Roth IRA with no additional tax.¹

Pre-tax 401(k) money moved into a Roth IRA is a different story. The IRS treats it as a conversion, and you owe ordinary income tax on the entire converted amount in the year of the rollover.³ Convert $50,000 of pre-tax savings and $50,000 gets added to your taxable income that year. The upside is that qualified withdrawals from the Roth IRA in retirement are tax-free, which can pay off if you expect to be in a higher tax bracket later.

A New Employer’s 401(k), 403(b), or Governmental 457(b)

If you are changing jobs, you can often roll an old 401(k) straight into the new employer’s plan. The receiving plan does not have to be another 401(k): pre-tax 401(k) money can go into a 403(b) plan (common at public schools and tax-exempt organizations) or a governmental 457(b) plan (offered by state and local governments).⁴ Non-governmental 457(b) plans are not eligible to receive 401(k) rollovers.¹

Not every employer plan accepts incoming rollovers. The plan’s governing documents have to allow them, so check the Summary Plan Description or ask the plan administrator before initiating anything. Some plans accept only pre-tax rollovers and reject after-tax or designated Roth balances from a prior employer.

There is one strategic reason to favor a current employer’s plan over an IRA. If you are still working past age 73, you can generally delay required minimum distributions from that employer’s 401(k) until you actually retire, unless you own 5% or more of the business.⁵ Consolidating old balances into your current plan can extend that delay to the rolled-in money, provided the plan allows it.

SEP-IRA and SIMPLE IRA

Pre-tax 401(k) money rolls into a SEP-IRA on the same terms as a traditional IRA: not taxable, and the funds keep their tax-deferred status.¹ This matters most if you become self-employed and already have a SEP-IRA for your business.

A SIMPLE IRA can receive 401(k) money too, but only after you have participated in the SIMPLE IRA plan for at least two years.⁶ Attempting the rollover before that two-year window closes disqualifies the transfer. Designated Roth 401(k) contributions cannot go into a SEP-IRA or SIMPLE IRA at all — they are limited to a Roth IRA or another designated Roth account in an employer plan.¹

Direct Rollover vs. Indirect Rollover

Where the money goes is one decision. How it gets there is another, and getting it wrong can cost you thousands.

Direct Rollover

In a direct rollover, your old plan sends the money straight to the receiving plan or IRA. The check is made payable to the new institution “for the benefit of” (FBO) your account, not to you personally. Because you never take possession of the funds, nothing is withheld for taxes and no 60-day clock starts running.⁷ This is the simplest and safest route for most people.

Some plan administrators still mail a physical check to your home rather than sending it electronically. If the check is payable to the new custodian and not to you, it is still a direct rollover. Just forward it to the receiving institution.

Indirect Rollover

In an indirect rollover, the old plan pays the distribution to you. You then have 60 days from the date you receive the money to deposit it into an eligible retirement plan or IRA.² Miss that 60-day window and the entire amount counts as a taxable distribution. If you are under age 59½, you also owe a 10% early withdrawal penalty on top of the income tax.⁸

There is a second catch. Your old plan must withhold 20% of the distribution for federal income taxes before cutting you the check.⁹ On a $50,000 balance, you receive $40,000. To complete the rollover without tax on the difference, you have to deposit the full $50,000 into the new account within 60 days, meaning you need to come up with the missing $10,000 out of pocket. You get the withheld amount back as a tax refund when you file, but the cash crunch in the meantime catches many people by surprise.⁷

Amounts You Cannot Roll Over

Required Minimum Distributions

If you have reached the age at which required minimum distributions apply (currently 73), the RMD portion of any distribution cannot be rolled over.⁵ You take the RMD first, pay income tax on it, and then roll the remaining balance. Rolling an amount that includes an RMD creates an excess contribution in the receiving account, which carries its own penalties.

Outstanding 401(k) Loans

If you leave your job with an unpaid 401(k) loan, the outstanding balance is treated as a distribution. You can avoid the tax hit by rolling an amount equal to that balance into an IRA or another eligible plan, but the deadline is the due date (including extensions) of your federal tax return for the year the loan is treated as distributed.¹⁰ Miss that deadline and the unpaid balance becomes taxable income, plus the 10% early withdrawal penalty if you are under 59½.

Splitting After-Tax Contributions

Some 401(k) plans allow after-tax contributions that are separate from both pre-tax and designated Roth money. On rollover, you can split these buckets: send the pre-tax portion to a traditional IRA or employer plan, and send the after-tax portion to a Roth IRA.¹¹ On a $100,000 rollover with $80,000 pre-tax and $20,000 after-tax, the $80,000 can go to a traditional IRA and the $20,000 to a Roth IRA. The after-tax portion lands in the Roth without additional tax because the contributions were already taxed, though any earnings on those after-tax contributions are taxable at the time of conversion.

Employer Stock and Net Unrealized Appreciation

If your 401(k) holds shares of your employer’s stock, rolling everything into an IRA is not always the smart move. A tax strategy called net unrealized appreciation (NUA) lets you move the employer stock to a regular taxable brokerage account instead. You pay ordinary income tax only on the original cost basis of the shares — the price at which they were purchased inside the plan — not on their current market value.² When you later sell the shares, the growth (the NUA) is taxed at long-term capital gains rates, which top out at 20%, well below the ordinary income rates that apply to IRA withdrawals.

NUA treatment requires a lump-sum distribution: your entire vested balance must be distributed within a single tax year. It is generally triggered by separation from service, reaching age 59½, disability, or death. Rolling the employer stock into an IRA instead permanently forfeits the NUA break, because all future IRA withdrawals are taxed as ordinary income. NUA is most valuable when the stock has appreciated significantly above its cost basis.

Inherited 401(k) Accounts

If you inherit a 401(k) from a spouse, you have an option no one else gets: you can roll the funds into your own IRA and treat the account as if it had always been yours.¹² That lets you base distributions on your own age and RMD schedule, which is often the most tax-efficient path for a younger surviving spouse.

Non-spouse beneficiaries — children, siblings, friends — cannot roll an inherited 401(k) into their own IRA. They generally take distributions under the 10-year rule, emptying the account within 10 years of the original owner’s death, or over their own life expectancy if they qualify as an eligible designated beneficiary.¹² The plan document controls which options are actually available, so the plan administrator is the first call.

1
Internal Revenue Service. Rollover Chart
2
Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
3
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
4
Internal Revenue Service. IRC 403(b) Tax-Sheltered Annuity Plans
5
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
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Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
7
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
8
Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans
9
Office of the Law Revision Counsel. 26 USC 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
10
Internal Revenue Service. Retirement Topics – Plan Loans
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Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
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Internal Revenue Service. Retirement Topics – Beneficiary