How to Roll Over a 401(k): Step-by-Step Process (2026)
By Wealthvieu · Updated
Changing jobs is one of the most common triggers for a 401(k) rollover. Here’s exactly how to do it, what to watch out for, and which option is best for your situation.
Table of Contents
Your 401(k) Rollover Options
Option
What It Means
Pros
Cons
Roll over to IRA
Transfer to a traditional or Roth IRA at a brokerage
Widest investment options, lower fees
Pro-rata rule for backdoor Roth
Roll over to new employer 401(k)
Transfer to your new job’s retirement plan
Keep everything in one place
Limited to new plan’s investments
Leave it in old 401(k)
Do nothing—money stays put
No action needed
Old plan fees, limited access, easy to forget
Cash out
Take the money as cash
Immediate access
Taxes + 10% penalty if under 59½
The Math on Cashing Out (Don’t Do This)
$50,000 401(k) Balance, Age 35, 22% Tax Bracket
Option
Tax
Penalty
Net Amount
Lost Retirement Value at 65*
Roll over (no tax)
$0
$0
$50,000
$0
Cash out
$11,000
$5,000
$34,000
$283,000
*Assuming 7% annual return for 30 years. That $50,000 would grow to $380,000.
Cashing out costs you $283,000 in lost retirement savings.
How to Do a Direct Rollover (Step by Step)
Rolling to an IRA
Step
Action
Timeline
1
Open a traditional IRA at your brokerage (Fidelity, Vanguard, Schwab)
15 minutes online
2
Call your old 401(k) plan administrator
Have plan number and SSN ready
3
Request a “direct rollover” to your new IRA
Specify the account number
4
Choose to send via check (made to brokerage FBO you) or wire transfer
Wire is faster
5
Verify funds arrive in your IRA
3-10 business days
6
Invest the money (it may arrive as cash)
Same day you receive it
Rolling to a New Employer 401(k)
Step
Action
Timeline
1
Confirm your new employer’s plan accepts rollovers
Ask HR or plan administrator
2
Get new plan’s rollover instructions and account number
From new plan administrator
3
Contact old 401(k) administrator, request direct rollover to new plan
Provide new plan details
4
Complete any required paperwork for both plans
Varies
5
Verify funds arrive in new plan
1-3 weeks
Direct vs. Indirect Rollover
Feature
Direct Rollover
Indirect Rollover
How it works
Money goes directly from old plan to new plan/IRA
Check is sent to you; you deposit it within 60 days
Tax withholding
None
20% mandatory withholding
Deadline
None
60 days to deposit
Risk
Very low
High—miss the 60 days and it’s a taxable distribution
Recommended?
Always
Almost never
The Indirect Rollover Trap
If you receive a $50,000 distribution check from an indirect rollover:
What Happens
Amount
You receive
$40,000 (after 20% withholding)
To avoid taxes, you must deposit
$50,000 (the full original amount)
Out-of-pocket to make up the difference
$10,000
If you only deposit $40,000
$10,000 is treated as a taxable distribution
Tax on $10,000 (22% bracket)
$2,200
Early withdrawal penalty (if under 59½)
$1,000
Total cost of the indirect rollover mistake
$3,200
Always choose a direct rollover.
Traditional 401(k) to Roth IRA Conversion
You can roll a traditional 401(k) directly into a Roth IRA, but you’ll owe income tax on the entire amount:
401(k) Balance
Tax Bracket
Tax Owed
Net Benefit Over Time*
$25,000
22%
$5,500
Tax-free growth forever
$50,000
22%
$11,000
Tax-free growth forever
$100,000
24%
$24,000
Tax-free growth forever
$200,000
32%
$64,000
Tax-free growth forever
*Roth conversions make the most sense when you’re in a lower tax bracket now than you expect in retirement.
When a Roth Conversion Makes Sense
Situation
Convert to Roth?
Between jobs (lower income year)
Yes—lower tax bracket
Early career (low income)
Yes—pay less tax now
Expect higher taxes in retirement
Yes—lock in today’s rate
Large 401(k) balance and high bracket now
Maybe—consider partial conversion
Near retirement with high income
Usually no—high tax cost now
Need the money within 5 years
No—5-year rule on conversions
IRA vs. New 401(k): Which Is Better?
Factor
Roll to IRA
Roll to New 401(k)
Investment options
Thousands of funds, ETFs, stocks
Limited to plan menu
Fees
Typically 0.03-0.20%
0.05-1.0%+
Backdoor Roth compatibility
NO—triggers pro-rata rule
YES—keeps IRA clean
Creditor protection
Varies by state
Federal protection (ERISA)
Loan option
No
Maybe (if plan allows)
Required minimum distributions
Starting at 73
Starting at 73 (can delay if still working)
Simplicity
One account you fully control
Managed through employer
The Backdoor Roth Rule
If you plan to use the backdoor Roth IRA strategy, do NOT roll your 401(k) into a traditional IRA. Roll it to your new employer’s 401(k) instead. Having pre-tax IRA money triggers the pro-rata rule, which makes backdoor Roth conversions partially taxable.
Special Situations
Employer Stock in Your 401(k) (Net Unrealized Appreciation)
If your 401(k) holds employer stock, consider Net Unrealized Appreciation (NUA):
Feature
NUA Strategy
Regular Rollover
How it works
Transfer employer stock to taxable account; pay income tax only on cost basis
Roll everything to IRA; all growth taxed as ordinary income
