How to roll over a 401(k)
Last updated August 2026
Short answer
The process is administrative and mostly waiting. The decisions that matter are where the money goes and making sure it never touches your bank account on the way.
Decide the destination first
An IRA gives you any investment the custodian offers and simpler required distributions later.
A new employer's plan keeps the balance eligible for the rule of 55, preserves ERISA creditor protection, and keeps it out of the pro-rata calculation if you use a backdoor Roth.
Leaving it where it is remains an option, and is sometimes the cheapest one if the old plan has institutional pricing.
Open the receiving account
Do this before contacting the old plan, because the recordkeeper will ask for the account number.
Keep pre-tax and Roth balances separate, opening both a traditional and a Roth IRA if the plan holds both types.
Name beneficiaries on the new account rather than assuming the old designations carry across, because they do not.
Request a direct rollover
Ask specifically for a direct rollover, trustee to trustee. Some plans issue a cheque made payable to the new custodian for your benefit, which also counts as direct.
A cheque payable to you personally is an indirect rollover and triggers the withholding, so the wording on the payee line matters.
Confirm whether the plan needs a form, a phone call or a signature guarantee, since requirements vary considerably between recordkeepers.
Try it in Walnut
Walnut connects to your brokerage and reads the receiving IRA, so a rollover lands somewhere you can actually see alongside the rest of your portfolio.
The 20% withholding trap
An eligible rollover distribution paid to you is subject to 20% mandatory withholding.
Rolling $100,000 that way means $80,000 arrives, and completing the rollover requires finding $20,000 elsewhere within 60 days.
Miss it and that $20,000 is a taxable distribution, plus the 10% additional tax if you are under 59.5. Going direct avoids the situation entirely.
Time out of the market
Plans generally liquidate investments before transferring, so the balance sits in cash for the duration.
Two to four weeks is common, and a paper cheque in the post extends it.
Invest the money promptly on arrival rather than waiting for a better entry, since the exposure gap is already a market call you did not choose to make.
Loans and company stock
An outstanding plan loan usually has to be repaid on leaving, and an unpaid balance becomes a taxable distribution.
You may be able to contribute an amount equal to the offset to an IRA by the tax filing deadline, which avoids the tax if you can find the cash.
If the plan holds employer stock, net unrealised appreciation rules may allow favourable treatment that a rollover destroys, so take advice before moving it.
After it lands
Check that pre-tax and Roth amounts went to the correct account types, and that the totals match the old statement.
Invest the cash, since it will otherwise sit in a settlement fund indefinitely.
Keep the Form 1099-R the old plan issues, which should show the distribution as a direct rollover rather than a taxable event.
Sources
Rollover rules, mandatory withholding, the 60-day window and the one-per-year limit are published by the IRS at Rollovers of retirement plan and IRA distributions, with loan offset rules in Publication 575. Walnut is informational and is not an investment adviser. This guide is educational and not personalized tax advice.
FAQ
How do I roll over a 401(k)?
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Open the receiving account first, then contact the old plan's recordkeeper and request a direct rollover. The money should move trustee to trustee, or by a cheque made payable to the new custodian for your benefit rather than to you.
What is the 20% withholding trap?
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If the distribution is paid to you rather than moved directly, the plan must withhold 20% for tax. To complete a full rollover you then have to replace that 20% from your own money within 60 days, or it counts as a taxable distribution.
How long does it take?
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Commonly two to four weeks, sometimes longer where a paper cheque is mailed. Investments are usually sold first, so the balance is out of the market during the transfer, which is worth knowing rather than being surprised by.
Should I roll to an IRA or to my new employer's plan?
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An IRA gives more investment choice. The new plan keeps the money eligible for the rule of 55 and out of the pro-rata calculation for a backdoor Roth. Compare fees in both before deciding, since neither is universally better.
What happens to my Roth 401(k) balance?
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It should go to a Roth IRA or a Roth account in the new plan, not to a traditional one. Mixing them creates a taxable conversion by accident, and separating them afterwards is considerably harder than getting the instruction right.
What if I have an outstanding plan loan?
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Leaving usually accelerates repayment. An unpaid balance is treated as a distribution, taxable and generally subject to the 10% additional tax, though you may be able to contribute the amount to an IRA by the tax filing deadline to avoid that.
Can I roll over while still employed?
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Sometimes. Plans may permit in-service distributions after a certain age or for certain contribution types, and many do not permit it at all. The plan document decides.
Is there a limit on how many rollovers I can do?
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Direct rollovers between plans and IRAs are unlimited. The one-per-twelve-months limit applies only to indirect IRA-to-IRA rollovers where the money passes through your hands, which is one more reason to always go direct.