How to Roll Over a 401(k) Into an IRA

Learn how to move your old 401(k) to an Individual Retirement Account (IRA) without triggering taxes or penalties.

1. Choose your destination. Decide whether you want to open a traditional IRA or a Roth IRA. If you roll money from a traditional 401(k) to a traditional IRA, you keep the tax-deferred status. If you move it to a Roth IRA, you will owe income taxes on the entire amount in the year of the transfer.
2. Open the new account. Research account providers and open an IRA. Look for firms that offer a wide variety of investment options and low management fees. You do not need to fund this account immediately, as the rollover will come from your former employer.
3. Request a direct rollover. Contact your former 401(k) plan administrator and request a 'direct rollover' or 'trustee-to-trustee' transfer. This ensures the check is made out to the financial institution holding your new IRA, rather than to you personally. This step is critical to avoid mandatory tax withholding.
4. Verify the transfer. Once the funds arrive, log in to your new IRA account to confirm the balance is correct. Your previous employer should send you a 1099-R tax form the following year reporting the distribution; keep this for your records as proof that the money was rolled over and not cashed out.