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  • W. Scott Hurt, CFP®, CPA

How To Rollover Your 401(k) To An IRA

How to Rollover Your 401(k) to an IRA

Leaving your current employer requires much more than putting in your two weeks, packing up your desk, and having a parting happy hour with peers.

You need to decide what to do with your 401(k)—leave it be, consolidate it with your new employer's plan, cash it out, or roll it over to an IRA.

While all of these options have their merits, rolling over your 401(k) from your former employer to an IRA can offer investors more flexibility, customization, and room for growth.

Download Free Cheat Sheet: Should I Rollover My Old 401(k)?

Knowing how to rollover your 401 (k) to an IRA is just part of the puzzle. You'll also need to know the pros and cons of doing it in the first place.

Here's how to rollover your 401 (k) to an IRA and many of the considerations you should think about before making it happen.

Top Benefits of a 401(k) to IRA Rollover

There are some potential advantages to rolling over your 401(k) into an IRA account.

General Rollover IRA Benefits

For starters, it can make your financial life simpler to manage.

Having fewer accounts from consolidating old 401(k)s makes investment management more straightforward and helps streamline your withdrawal management in retirement—fewer accounts, fewer required minimum distributions (RMDs).

Many IRAs provide far greater investment options than a typical 401(k) plan, giving you the ability to craft a well-diversified portfolio tailored to your needs.

You can invest in nearly anything under the sun, from stocks and bonds to index mutual funds and ETFs, REITs, commodities, and more.

These investment options offer more freedom for customized asset allocation for your risk tolerance and financial goals.

Doing so can also be a nice catalyst to your retirement savings.

Technical Rollover IRA Benefits

Rollovers provide more technical benefits as well.

Unless you have an exceptionally good 401(k), it’s entirely possible that you can lower your account fees by rolling over funds to an IRA. Investment fees are the antithesis of returns, so this particular benefit can make a substantial difference.

However, fees aren’t everything in this decision. It can make sense to roll your 401(k) over even if the IRA fees are higher than your 401(k).


Perhaps the investment choices provides greater financial opportunities.

Having an IRA can also make it much easier to manage Roth conversions. With both a traditional and Roth IRA at the same custodian, it’s straightforward to accomplish.

Housing IRAs at the same custodian also opens the door to implement an asset location strategy along with your Roth conversions.

An example could be placing your income-generating assets in the traditional IRA, where they would be taxed at regular income tax rates anyway, and your high-growth assets like stocks in the Roth IRA, to grow tax-free.

IRAs also give you a significant charitable benefit over 401(k)s.

The IRS allows you to make a Qualified Charitable Distribution of up to $100,000 tax-free from your IRA to donate to a qualified charity.

A QCD can even count as your annual RMD. That benefit doesn’t exist for 401(k)s.

Finally, having an IRA may make it easier to consult with a professional advisor and allow them to manage your account per your financial plan. It can be difficult—sometimes impossible—to defer management to an independent advisor with a 401(k).

Should You Invest In a Traditional or Roth IRA?

Not all Individual Retirement Accounts are created equal—so which should you choose?

As with most financial questions, there isn’t a universal answer.