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

You can roll a 401(k) into a traditional IRA, a Roth IRA, another employer’s 401(k), a 403(b), a governmental 457(b), a SEP-IRA, or — after two years of participation — a SIMPLE IRA.¹ Which destination is right for you depends on whether you have a new job, whether you want to change the tax treatment of your savings, and what kinds of contributions are sitting in the account. Each option has its own eligibility rules and tax consequences.

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; your savings keep their tax-deferred status and continue growing without an immediate tax bill.² You open the account yourself at a bank, brokerage, or other financial institution rather than through an employer, and the investment menu is typically much broader than what a 401(k) offers.

A traditional IRA also accepts rollovers from virtually any employer-sponsored retirement plan, including 401(k), 403(b), and governmental 457(b) plans.¹ One trade-off: once pre-tax money is in a traditional IRA, some future employer plans will not accept it back in. If you think you might want to consolidate everything into a future employer’s plan later, rolling directly into that plan can preserve more flexibility than parking money in an IRA first.

Roth IRA

You can also roll a 401(k) into a Roth IRA, but the tax result depends on what type of contributions you are moving. Designated Roth contributions inside a 401(k) — money you already paid taxes on — transfer directly into a Roth IRA with no additional tax.¹

Pre-tax 401(k) money is different. The IRS treats a rollover from a pre-tax 401(k) into a Roth IRA as a conversion, so you owe ordinary income tax on the full converted amount in the year the rollover happens.³ Converting $50,000 of pre-tax savings adds $50,000 to that year’s taxable income. In exchange, qualified withdrawals from the Roth IRA in retirement come out tax-free, which can pay off if you expect to be in a higher tax bracket later.

A New Employer’s Plan

If you are moving to a new job, you can often roll the old 401(k) directly into your 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 (offered by public schools and tax-exempt organizations) or a governmental 457(b) (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 starting a transfer. Some plans accept only pre-tax rollovers and turn away after-tax or designated Roth balances from a prior employer.

There is a strategic reason to keep money in a current employer’s plan 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, as long as you do not own 5% or more of the business.⁵ Rolling older 401(k) balances into your current employer’s plan can extend that delay to the consolidated total, though you should confirm the plan accepts rollovers for this purpose.

SEP-IRA and SIMPLE IRA

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

Rolling a 401(k) into a SIMPLE IRA is allowed, but only after you have participated in the SIMPLE IRA plan for at least two years.⁶ A transfer attempted before that two-year window closes does not qualify as a valid rollover. Designated Roth 401(k) contributions cannot go into either a SEP-IRA or a SIMPLE IRA; they can only be rolled into a Roth IRA or another designated Roth account inside an employer plan.¹

Amounts That Can’t Come Along

Two pieces of a 401(k) balance are handled separately from the rollover itself.

If you are 73 or older, the required minimum distribution portion of a distribution cannot be rolled into another retirement account.⁵ You have to take the RMD, pay income tax on it, and roll over what is left. Rolling over an amount that includes the RMD creates an excess contribution in the receiving account.

An outstanding 401(k) loan is treated as a distribution when you leave your job. You can avoid tax on that amount by rolling the loan balance into an IRA or another eligible plan, but the deadline is the due date, including extensions, for filing your federal tax return for the year the loan is treated as distributed.⁷ Miss that deadline and the unpaid loan becomes taxable income, plus a 10% early withdrawal penalty if you are under 59½.

Direct Rollover vs. Indirect Rollover

How the money moves matters as much as where it goes.

Direct Rollover

In a direct rollover, the 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” your account, not to you personally. Because you never take possession of the funds, there is no tax withholding and no 60-day deadline to worry about.⁸ This is the safest method for almost everyone.

Some plan administrators still mail a physical check to your home even in a direct rollover. If the check is payable to the new custodian rather than to you, just forward it. It is still a direct rollover.

Indirect Rollover

In an indirect rollover, the plan pays the distribution to you. You have 60 days from the date you receive it to deposit the money into an eligible plan or IRA.² Miss that window and the entire amount is treated as a taxable distribution. If you are under 59½, a 10% early withdrawal penalty applies on top of the income tax.⁹

There is another catch. The old plan must withhold 20% of the distribution for federal income taxes before sending you the check.¹⁰ On a $50,000 balance, you receive $40,000. To roll the full amount over and avoid tax on the missing piece, you need to deposit $50,000 into the new account within 60 days, meaning you have to come up with the withheld $10,000 from other funds. You get the withheld amount back as a refund at tax time, but the cash flow gap catches many people off guard.⁸

Situations That Can Change the Best Destination

After-Tax Contributions

Some 401(k) plans allow after-tax contributions that are separate from both pre-tax and designated Roth money. At rollover, you can split the pot: send the pre-tax portion to a traditional IRA or another employer plan, and direct the after-tax portion to a Roth IRA.¹¹ If you are rolling $100,000 that consists of $80,000 pre-tax and $20,000 after-tax, the $80,000 can go to the traditional IRA and the $20,000 to the Roth IRA. The after-tax portion enters the Roth without additional tax because you already paid tax on those contributions. Any earnings attributable to the after-tax contributions would be taxable when converted.

Employer Stock in the Plan

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

NUA treatment requires a lump-sum distribution, meaning your entire vested balance has to 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 permanently loses this treatment; every dollar you later withdraw comes out as ordinary income. NUA is most valuable when the stock has appreciated substantially above its cost basis.

Inherited 401(k) Accounts

A surviving spouse who inherits a 401(k) can roll the funds into their own IRA and treat the account as if it had always been theirs.¹² That lets a younger spouse delay distributions based on their own age and RMD schedule, which is often the most tax-efficient path.

Non-spouse beneficiaries — children, siblings, friends — cannot roll an inherited 401(k) into their own IRA. They generally must 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 distribution options are actually available, so the first call should be to the plan administrator.

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
6
Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
7
Internal Revenue Service. Retirement Topics – Plan Loans
8
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
9
Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans
10
Office of the Law Revision Counsel. 26 USC 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
11
Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
12
Internal Revenue Service. Retirement Topics – Beneficiary