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401(k) Rollover

Here's what you need to know about 401(k) rollovers.

In this guide

Many people benefit from rolling a 401(k) into an IRA after leaving a job, often in the form of lower fees, a larger investment selection or both. But, of course, there’s more to it than that.

Our guide intends to be a starting point to help you make this important decision about your retirement savings.

The basics: What is a 401(k) rollover?

When you leave a job, you may not realize that the money in your employer-sponsored 401(k) plan can leave with you. But a 401(k) rollover allows you to transfer your balance into another retirement account — like an individual retirement account or your new employer’s 401(k) plan — while still keeping the money tax-deferred. For many people, the best choice is to convert the 401(k) into an IRA, which will open the door to more investment choices. Of course, you can also leave your 401(k) with your old employer, if you’re happy with the plan. However, if you do that, you won’t be able to make additional contributions to it.

The three main types of 401(k) rollovers are:

  • 401(k) to traditional IRA: Allows you to keep your money tax-deferred, and may offer more investment options, possibly with lower fees.
  • 401(k) to Roth IRA: You’ll pay taxes on the rolled amount because it will be treated like a Roth conversion. (The exception is if you’re rolling over a Roth 401(k).)
  • Old 401(k) to 401(k) with a new employer: May be a sensible choice if you prioritize keeping your funds in one account, and if your new employer’s plan offers low-cost investment options (more on fees below). If you want to do this, contact your current 401(k) plan administrator for rollover instructions.

» MORE: Why leaving your 401(k) behind may be costly

» MORE: Compare Roth IRAs and Traditional IRAs

» MORE: Learn about the benefits of a Roth IRA

How to roll over a 401(k) to an IRA or Roth IRA

There’s a right way to do this and a wrong way. You don’t want the 401(k) provider to cut a check in your name, and you don’t want to cash out your balance. In both scenarios, you’re at risk of owing up to a third of your balance to the IRS.

To protect your balance from taxes and penalties, there are certain steps you must take.

Roll over your 401(k) to an IRA in four steps

  1. Decide on a Roth or a traditional IRA. If you roll into a Roth IRA, you’ll owe taxes on the rolled amount.
  2. Open a rollover IRA account. Check out our complete list of best IRA accounts and best Roth IRA accounts.
  3. Ask your 401k plan for a “direct rollover.” These two words are important: They mean that the 401(k) plan will cut a check directly to your new IRA account, not to you personally.
  4. Make your investment choices. The funds will come into your new account as cash, so you’ll need to invest it.

For complete details, read about how to roll over a 401(k) to an IRA.

Why should you roll over your 401(k)?

The decision of whether to roll over your 401(k) to an IRA will depend on several factors. An IRA can offer benefits not found in a 401(k), including:

  • Lower fees: There are several IRA providers that charge no fees to maintain your account, but 401(k) plans frequently charge participants administrative fees.
  • Large investment selection: The typical 401(k) offers a curated selection of 20 or 25 investments. In an IRA, you’ll get access to a range of investment options, including stocks, bonds, mutual funds, index funds and exchange-traded funds. That wider selection also means you can easily shop around for funds with low expense ratios.

Over the years, even small fees can have a big impact on overall retirement savings, which is why you want to minimize them wherever you can. Use the calculator below to compare the cost of investment fees, or analyze your 401(k) fees in more detail with our tool.

For more, see our full list of the pros and cons of rolling over your 401(k) to an IRA.

Ready to roll over your 401(k) to an IRA?

Best brokers for your IRA

These providers offer a large fund selection, high-quality customer service and minimal account fees.

td-ameritrade 5.0-stars
  • Offers more than 100 commission-free ETFs and over 4,000 no-transaction-fee mutual funds with no account minimum. See our TD Ameritrade review.
  • Commission: $6.95 per trade
  • Account minimum: $0
  • Promotion: $100 cash bonus for new accounts over $25,000, up to $600 for accounts over $250,000
fidelity-ira 5.0-stars
  • Impressive selection of highly rated funds with low expense ratios, many under 0.50%
  • Commission: $4.95 per trade
  • Account minimum: $0 for IRAs
  • Promotion: Up to 500 free trades with a qualifying deposit

Best IRA providers for the hands-off investor

Robo-advisors Betterment and Wealthfront manage your portfolio for you.

Betterment 5.0-stars
  • Ideal for hands-off investors and retirement investing. See our Betterment review.
  • Management fee: 0.25% to 0.50%
  • Account minimum: $0
  • Promotion: One month free management with $10,000 deposit
Wealthfront 5.0-stars
  • Manages the first $10,000 invested for free. See our Wealthfront review.
  • Management fee: 0.25%
  • Account minimum: $500
  • Promotion: NerdWallet readers get $15,000 managed for free

Still not sure? No problem.

We can analyze your 401(k) fees, determine how much you would be saving and suggest some great options.

Analyze my 401(k)