Rollover 401k to IRA - FAQs

Can I rollover a 401k to IRA?

Yes, you can. You can't do it anytime you want to though. Your account through your employer is only really accessible (in terms of cashing it out or rolling it over) immediately after leaving your job. During normal circumstances you aren't allowed to move your account. These laws were put into place to try and protect your accounts, in part from creditors.

What are my other options for my retirement account when leaving my current job?

You have four options for what do with your account immediately after leaving a position. You can leave the account where it is, you can roll it over to a 401k plan with your new employer, you can cash it out (with an early withdrawal penalty), or you can rollover to an IRA.

What is an IRA?

An independent retirement account is just that. It's an account you go out and set up on your own with a financial company of your choosing. Similar to the account you had through your employer, you contribute savings for your retirement and the money is invested in various ways of your choosing (stocks, bonds, money market accounts, CDs, and a long list of other options) earning you returns over the years and helping you build up your savings for retirement.

How is an IRA different from a 401k?

You have a lot more control over an independent retirement account than you do ones offered by your employer. You can pick what type of account you want to set up (traditional, Roth), you can pick from any kinds of investments you want, and the list goes on. With an account through your employer they decide what account options will be available to you, and typically put together a couple of different investment packages for you to choose from. With an independent account you can do all of this on your own. So, the main difference between these two options is the level of control. One other difference is the maximum contribution limit, which changes every year, but is much higher for a 401k.

Can I roll my traditional 401k to a Roth IRA?

This isn't an advisable move, but you certainly can do this. When you do, you will be taxed (both state and federal) for the money you are moving. This is because in a traditional account your contributions were taken from your pretax income, with the idea that you would pay taxes on this money when you made withdrawals in retirement. Since you are moving over to a Roth account, where your contributions are supposed to be from your after tax income, you have to tax these contributions so that they will be after tax money, as the Roth account requires.