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

You can move money from your 401(k) into an IRA while still employed, but only if your employer’s plan allows what’s called an in-service rollover. Federal law lets plans offer this option; it doesn’t require them to.¹ When plans do offer it, the most common trigger is reaching age 59½, though some allow earlier access to certain contribution types. Done as a direct rollover, the transfer is tax-free. Done carelessly, it can create an unexpected tax bill.

Check Your Plan First

Start with the Summary Plan Description, the document that spells out what your 401(k) does and does not permit. It’s typically on your employer’s benefits portal or HR site. Some plans allow in-service rollovers for all contribution types. Others limit them to employer contributions or after-tax money. A few don’t allow them at all.

If the language is unclear, ask the plan administrator directly which contribution sources are eligible. Getting a clear answer here saves you from filing paperwork the plan will reject.

Age and What Money You Can Actually Move

A 401(k) usually holds several types of money, and each type may follow a different rule.

The money you deferred from your own paycheck — your elective deferrals, whether pre-tax or Roth — is generally locked until age 59½, plan termination, hardship, disability, or separation from service.² The statute itself confirms that a plan doesn’t lose its tax-qualified status by distributing to an employee who has reached 59½ and is still working.¹

Employer contributions — matching funds and profit-sharing deposits — often follow different rules. Many plans release these after the money has sat in the account for a set number of years, regardless of your age. Only the vested portion can be rolled over. These service-based triggers are set by the plan, not by federal law, so waiting periods vary.

Voluntary after-tax (non-Roth) contributions, if your plan accepts them, often have the most flexible withdrawal rules and may be available for rollover before 59½.

Your plan administrator can give you a breakdown by contribution source and vesting status. That breakdown tells you how much you can actually move.

Direct Rollover vs. Indirect Rollover

How the money gets from the 401(k) to the IRA matters as much as whether you’re eligible in the first place.

Direct Rollover

The plan sends your money straight to the IRA custodian. Nothing is withheld, and the funds stay tax-deferred throughout the transfer.³ Even if the administrator mails a physical check, it’s made payable to the IRA custodian “for the benefit of” you, so it can’t be cashed or dropped into a personal bank account. For nearly everyone, this is the right choice.

Indirect Rollover

The plan pays the money to you personally. Federal law requires the administrator to withhold 20% of the taxable amount for federal income taxes.³ You then have 60 days from the date you receive the funds to deposit the full original amount into an IRA, including the 20% that was withheld. You have to make up that withheld portion from other savings. If you deposit only the 80% you received, the withheld 20% is treated as a taxable distribution and, if you’re under 59½, may also trigger the 10% early-withdrawal penalty.⁴

Miss the 60-day window entirely and the whole distribution becomes taxable income for the year. The IRS allows a self-certification if the delay was caused by specific circumstances beyond your control, such as serious illness, a postal error, an error by a financial institution, or severe damage to your home. You write a certification letter to the IRA custodian explaining the reason and deposit the funds within 30 days after the problem is resolved.⁵ The IRS can still challenge a self-certification on audit.

Traps That Can Turn a Rollover Into a Tax Bill

Outstanding 401(k) Loans

An outstanding loan reduces what’s available to roll over — only the net balance can move. A plan may also be prohibited from offsetting a loan balance against your account while you’re still an active employee, meaning the loan stays in place and keeps its repayment schedule.⁶

If a loan offset does happen, the offset amount counts as a distribution. You can avoid the tax by rolling an equivalent amount into an eligible retirement plan by the due date of your tax return, including extensions.⁶ If you have a loan, talk to your plan administrator before requesting the rollover.

Rolling Pre-Tax Money Into a Roth IRA

A traditional 401(k) to traditional IRA transfer is straightforward. Pre-tax dollars stay pre-tax. No tax due.⁷

Sending pre-tax 401(k) money to a Roth IRA is a conversion. The full amount is added to your taxable income for the year. There’s no early-withdrawal penalty on the conversion itself, but the income tax at your ordinary rate can be substantial on a large balance. On the paperwork, picking traditional versus Roth on the receiving side is what determines whether this happens. Choose carefully.

If your 401(k) holds voluntary after-tax (non-Roth) contributions, you can split the rollover: the after-tax basis goes directly to a Roth IRA tax-free, and the associated pre-tax earnings go to a traditional IRA.⁸

Required Minimum Distributions

If you’ve reached 73, RMDs change the math. The RMD amount itself can’t be rolled over — you have to take it as taxable income, and you have to take it before rolling over any remaining balance.⁹

There’s a second issue that catches older workers off guard. Many 401(k) plans let you delay RMDs from that plan until you actually retire, as long as you’re not a 5% or greater owner of the company.¹⁰ IRAs have no still-working exception. Traditional IRA RMDs start at 73 whether you’re employed or not. Rolling your 401(k) into an IRA can pull money into forced distributions that would otherwise have kept growing tax-deferred.

Employer Stock and Net Unrealized Appreciation

If your 401(k) holds company stock that has appreciated, rolling those shares into an IRA can cost you a valuable tax break. Under the net unrealized appreciation rule, you can move employer stock into a taxable brokerage account and pay ordinary income tax only on the original cost basis. The gain above that basis is taxed at long-term capital gains rates when you eventually sell.⁴ Roll the same shares into an IRA and every future dollar out — including the appreciation — is taxed as ordinary income.

NUA treatment requires a lump-sum distribution and applies after 59½, separation from service, disability, or death. You don’t have to apply it to all your employer stock; you can use it on some shares and roll the rest.

What You Give Up by Leaving the 401(k)

Money inside a 401(k) has broad federal protection under ERISA. Your employer’s creditors can’t reach it, and in most situations your own creditors can’t either.¹¹ There’s no dollar cap.

IRA assets are also protected in federal bankruptcy, but with a cap — an inflation-adjusted limit of roughly $1.7 million for 2025–2028 for traditional and Roth IRA balances. Amounts rolled over from a 401(k) generally sit outside that cap and keep unlimited bankruptcy protection because they came from an ERISA-covered plan.¹¹ Outside of bankruptcy, IRA creditor protection depends on state law. If you’re worried about lawsuits or creditor claims, weigh that before moving money out.

One thing that doesn’t change: rollover contributions don’t count against your annual IRA contribution limit.¹² You can roll a large balance in and still make your regular annual contribution to the same IRA. And the one-per-year rollover limit that applies to IRA-to-IRA transfers doesn’t apply to rollovers from an employer plan to an IRA.³

How to Start the Transfer

Open the receiving IRA first, so you have the custodian’s name and the new account number when you fill out the plan’s distribution or rollover request form. On that form you’ll specify:

The receiving IRA custodian and account number.
Delivery instructions — the check or wire should be payable to the IRA custodian “for the benefit of” you, which tells both institutions this is a direct rollover, not a personal distribution.
Direct rollover versus indirect rollover. Choose direct unless you have a specific reason not to.
Traditional IRA or Roth IRA on the receiving side. This is where an unintended conversion happens if you check the wrong box.

After you submit, the administrator verifies eligibility, liquidates the relevant investments to cash, and sends the funds to the receiving IRA. During that gap, your money isn’t invested, so plan to choose new investments in the IRA promptly once it arrives.

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. Revenue Procedure 2016-47
6
Internal Revenue Service. Plan Loan Offsets
7
eCFR. 26 CFR 1.402(c)-2 – Eligible Rollover Distributions
8
Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
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. Retirement Topics – IRA Contribution Limits