Can you roll over a 401(k) to an IRA without penalty?

You can roll over money from a 401(k) to an IRA without penalty, but you must deposit your 401(k) funds within 60 days. However, there will be tax consequences if you roll over money from a traditional 401(k) to a Roth IRA.

What are the advantages of rolling over a 401(k) to an IRA?

Rolling over money from a 401(k) to an IRA allows you to gain access to more investment options than are typically available in workplace 401(k) accounts. You may also be able to avoid account management fees associated with some 401(k) plans.

How do I roll over my 401(k) to an IRA?

When you leave your job for any reason, you have the option to roll over a 401(k) to an IRA. This involves opening an account with a broker or other financial institution and completing the paperwork with your 401(k) administrator to move your funds over. Usually, any investments in your 401(k) will be sold. The money will then be deposited into your new account, or you will receive a check that you must deposit into your IRA within 60 days to avoid early withdrawal penalties. If your provider directly sends you the check, they'll automatically withhold 20% for taxes.

Is there a time limit on rolling over a 401(k) to an IRA?

There's no time limit if you opt for a direct rollover. However, with an indirect rollover (where the money goes to you), you'll need to roll it over within 60 days. Otherwise, the IRS will treat it as a distribution, and you'll be subject to taxes and penalties.

How to Roll Over Your 401(k) to an IRA

When leaving your job, you can typically cash out your 401(k) or roll it over into a different retirement account.

By Robin Hartill, CFP – Updated Feb 19, 2026 at 6:10 PM EST | Fact-checked by Parker Hicks

Key Points

401(k) to IRA rollover is tax-free if the tax status matches the original account.
Rolling over a 401(k) when leaving a job offers more investment options.
IRA rollover must be completed within 60 days to avoid penalties.

Both a 401(k) and IRA are tax-advantaged retirement accounts, but they work differently. 401(k)s are sponsored by employers and often offer limited investment options.

IRAs aren't linked to employment. You can open one with any brokerage firm or other financial institutions. IRAs have a wider variety of investment selections, but they require more hands-on management.

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An infographic walking through the five steps of how to roll over a 401(k) plan into an IRA. — Image source: The Motley Fool.

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Because 401(k)s are offered through employers, you'll need to determine what to do with yours when you leave your job. Your options include:

Leave it invested.
Roll over to a new 401(k).
Roll over to an IRA.

There are plenty of pros and cons to these options, but let's take a close look at when rolling your workplace 401(k) into an IRA may make sense for you.

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Employee Stock Ownership Plan (ESOP)

An employee stock ownership plan (ESOP) is a benefit structure that pays workers in company shares.

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3. Complete the required paperwork.

Chances are you'll have forms to complete with your 401(k) administrator to arrange for the money to be transferred. Generally, during the rollover process, whatever investments you have will be sold and cash will be deposited into your new account.

4. Get your money into your new IRA ASAP.

If your 401(k) administrator doesn't transfer the money directly to your new IRA, you must deposit it within 60 days to avoid tax penalties associated with early withdrawals.

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5. Invest your newly deposited funds.

You'll have to choose investments for your new IRA so your money can grow. Make sure to maintain an appropriate asset allocation given your age, and consider your risk tolerance.

Finally, when your new IRA has been opened, be sure to read up on common IRA mistakes to avoid, such as forgetting required minimum distributions, not designating beneficiaries, and trading too often in the account.

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FAQs: How to Roll Over Your 401(k) to an IRA

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About the Author

Robin Hartill, CFP, is a contributing writer at The Motley Fool. Robin’s work has also been published by Yahoo Finance, USA Today, and Penny Hoarder. She is a graduate of the University of Florida.

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