How to roll over an old 401(k)

By Gary Harka Jr · Updated October 28, 2026 · 6 min read

Not investment advice. This guide is general education about U.S. rules, written by an individual investor, not a financial adviser, tax professional, or attorney. Rules change and your situation is unique, so confirm details with your plan administrator, the IRS or DOL pages linked below, or a qualified professional before you act.

When you leave a job, your 401(k) doesn't follow you automatically. The money stays in your old employer's plan until you tell the plan what to do with it. Moving it is usually simple, but one wrong box on a form can cost you taxes and penalties.

Step 1: Know your four options

After you separate from an employer, you generally have four choices for a 401(k) balance:

Leave it in the old plan. Many plans let former employees stay. Very small balances are the exception (see below).
Roll it into your new employer's plan, if that plan accepts incoming rollovers. Plans aren't required to, so ask.
Roll it into an IRA (an individual retirement account) at a brokerage, bank, or robo-adviser you choose.
Cash it out. This is almost always the most expensive choice, because the money becomes taxable income and, if you're under 59½, may also be hit with a 10% additional tax.

The IRS explains that when you roll over a distribution, you generally don't pay tax on it until you take it out of the new plan or IRA, and your savings keep growing tax-deferred. If you don't roll it over, the payment is generally taxable, other than Roth money that qualifies and amounts you already paid tax on.

Step 2: Decide where the money should go

Reasons to leave it or move it to your new plan

Low-cost institutional funds. Large plans can offer fund share classes that are cheaper than what you'd buy on your own. Compare the fees on your plan's annual fee disclosure with what an IRA would cost.
The "age 55" rule. If you leave an employer during or after the year you turn 55, withdrawals from that employer's plan are exempt from the 10% additional tax. The exception doesn't apply to IRAs, so rolling the money to an IRA can give it up.
Plan loans. Some 401(k) plans let you borrow from your account. IRAs don't.

Reasons to roll it into an IRA

Choice. An IRA can hold almost any fund, ETF, or bond, not just a plan's short menu.
Control. You pick the provider and can consolidate several old 401(k)s in one place.
Escaping a weak plan. If your old plan has high costs or poor funds (you can look up its grade), an IRA may be cheaper.

One thing to check first: if you plan to do "backdoor" Roth IRA contributions, a large pre-tax balance in a traditional IRA can make those conversions partly taxable under the pro-rata rule (reported on IRS Form 8606). Keeping pre-tax money in a workplace plan avoids that. Ask a tax professional if this applies to you.

Step 3: Open the receiving account

If you're rolling into an IRA, open it before you contact the old plan, and make sure it's the right type:

Pre-tax (traditional) 401(k) money goes to a traditional IRA (or "rollover IRA") to stay tax-deferred.
Roth 401(k) money goes to a Roth IRA.
Rolling pre-tax money into a Roth IRA is allowed, but it's a conversion: the amount becomes taxable income that year.

The IRS publishes a rollover chart showing which account types can roll into which.

If you're rolling into a new employer's plan, ask HR or the new plan's recordkeeper for its incoming-rollover form and instructions.

Step 4: Request a direct rollover (not a check to you)

This is the step that matters most. Contact the old plan's administrator (the company named on your statements, often a recordkeeper like Fidelity, Vanguard, or Empower) and ask for a direct rollover. With a direct rollover, the plan sends the money straight to your IRA or new plan, sometimes as a check made payable to the new account "for the benefit of" you. According to the IRS, no taxes are withheld from a direct rollover.

Compare that with an indirect (60-day) rollover, where the plan pays you:

The plan must withhold 20% for federal income tax, even if you plan to roll the money over.
You have 60 days to deposit the money in an IRA or plan.
To roll over the full balance, you must make up the withheld 20% from other savings. Any part you don't deposit is treated as a taxable distribution, and possibly subject to the 10% additional tax.

The IRS's own example: on a $10,000 distribution, the plan withholds $2,000. If you deposit only the $8,000 you received, the $2,000 shortfall is taxable. If you deposit the full $10,000 by adding $2,000 of your own, the whole amount is a tax-free rollover and you get the withheld $2,000 back as a tax credit when you file.

Step 5: Handle the details

Outstanding loans. If you leave with a 401(k) loan, the unpaid balance may be "offset" and treated as a distribution. In many cases you can avoid tax by depositing that amount in an IRA or plan by your tax-filing deadline, including extensions. Ask your plan how it handles loans before you leave.
Company stock. If your account holds your employer's stock, ask a tax professional about "net unrealized appreciation" before rolling it. Rolling it into an IRA can lose a potential tax break.
Unvested money. Only your vested balance is yours to move. Your own contributions are always 100% vested. Employer money vests on the plan's schedule.
Invest the money. Rollovers usually arrive as cash. Log in and choose investments, or it may sit uninvested.

Step 6: Watch the paperwork at tax time

The old plan will send a Form 1099-R showing the distribution. You report a direct rollover on your return, but it isn't added to your taxable income. Keep your rollover confirmation in case the numbers don't match.

What if I have a small balance?

Plans can push out small balances after you leave. Under the IRS rules, if your vested balance is $1,000 or less, the plan may pay it to you, usually with 20% withheld. Larger small balances can be moved into an IRA opened in your name without your consent. That ceiling was $5,000, and the SECURE 2.0 Act let plans raise it to $7,000 for distributions after 2023. If that happens, you can still roll a cash payout into an IRA within 60 days, and you can move an automatic-rollover IRA to a provider of your choice.

Mistakes to avoid

Cashing out "just a small one." Taxes plus a possible 10% additional tax can eat a big share of it.
Asking for a check made out to you when you meant to do a rollover.
Missing the 60-day deadline on an indirect rollover. The IRS can waive it only in limited cases.
Rolling Roth and pre-tax money into the wrong IRA type.
Forgetting the account. If that's happened, see how to find a lost or old 401(k).

The bottom line

For most people, the cleanest path is: decide where the money should live, open that account, then ask the old plan for a direct rollover. If you're not sure the old plan is worth keeping, check its grade and read how to tell if your 401(k) is good.