What Is a 401(k) Rollover?

A 401(k) Rollover refers to transferring your money from an old employer-sponsored retirement plan such as a 401(k) into an IRA or an individual retirement account.

You may need to roll your retirement savings to a new account if you are near retirement or switching jobs.

Can You Rollover Your 401(k) To a Roth IRA?

You can roll over your 401(k) to a Roth IRA.

You will need to approach your old 401(k) provider and ask for your account balance for a direct rollover into a Roth IRA.

Most providers will be able to facilitate this request without any problem.

Rules for Converting Your 401(k) To Roth IRA

When converting a 401(k) to Roth IRA, the same process is applied, just like rolling your 401(k) funds into a traditional IRA.

However, most 401(k)s are taxed differently from Roth IRAs, so paying taxes on your converted funds is an extra step.

Hence the rules for converting your 401(k) to Roth IRA are as follows:

Rule #1: Ensure You Are Allowed to Do a 401(K) To Roth IRA Conversion.

It is essential to check if you can roll over your 401(k) funds to a Roth IRA directly since several companies will only permit former employees to do rollovers.

Although, few may allow current employees to roll some of their savings into an IRA.

Rule #2: Decide How Much You Would Like to Convert.

You can choose how much you would like to convert. Either you can convert the total value of your plan or just a portion of it if your plan permits it.

If you can't do a partial conversion and don't want to convert everything to Roth savings, converting your savings into a Roth IRA and the other part into a traditional IRA may do so.

Roll Over Your 401(k) To a Roth IRA Pros and Cons

There are many benefits and drawbacks to rolling over your 401(k) into a Roth IRA.

The Pros of Rolling Over Your 401(k) Into a Roth IRA:

  • You can directly roll your 401(k) contributions and earnings into a Roth IRA tax-free.
  • It can grow tax-free for any additional contributions and earnings.
  • You do not necessarily have to take RMDs or required minimum distributions.
  • You may have more investment choices, unlike what was available in your previous employer's 401(k).
  • Your Roth IRA may offer additional services, like guidance and investing tools.
  • Multiple retirement accounts can be consolidated into a single Roth IRA to simplify management.

The Cons of Rolling Over Your 401(k) Into a Roth IRA:

  • Unlike 401(k), you can't borrow against a Roth IRA.
  • Any traditional 401(k) assets are subject to taxes upon being rolled into a Roth IRA at the time of conversion.
  • At some companies, maintaining your Roth IRA may have annual fees or other fees to pay, or more than what you did with your 401(k) plans, you may face higher investment fees, pricing, and expenses.
  • Some 401(k) investments may not be provided in a Roth IRA.
  • Generally, your IRA assets are protected only in the case of bankruptcy from creditors.
  • Negative tax implications may present in rolling over a company stock.

Signs to Roll Your 401(k) Into a Roth IRA

Here are some cues to consider rolling your 401(k) into a Roth IRA.

You Anticipate That Future Taxes May Become Higher

You'll have to pay taxes in advance on any funds you roll over since Roth IRAs apply after-tax dollars. Nevertheless, you won't have to pay taxes on your distributions, so rest assured that your withdrawals will be tax-free.

You Want to Take Withdrawals When You’re Ready and Not a Minute Before

Roth IRAs do not pressure you to begin taking withdrawals at the age of seventy. Thus, it allows you to collect your Roth IRA funds by the time you are ready to use them.

You Are Looking Forward to Earning More Money in the Future

Rolling your funds into a Roth IRA is the best idea if you're planning on earning lots of money or a high income.

You Want to Grow Your Tax Diversification

Regarding diversifying your future tax exposure, having both types of IRAs, such as traditional and Roth IRAs, is a safe idea if you are not sure how your tax and income situation might turn out.


How to Roll Your 401(K) Into an IRA

Rolling your 401 (k) into an IRA is not as complicated as it seems.

Choose the financial institution you want to roll over your savings into, such as a bank, online investing platform, or brokerage.

Once you have selected the institution, contact your previous employer's 401(k) administrator and request a direct rollover of your savings into your new IRA account.

Hence, in making rollovers, there are two types that either could be your option.

  • Direct Rollovers

Direct rollovers occur when your money is transferred from one account to another electronically.

  • Indirect Rollovers

The funds come to you to re-deposit in an indirect rollover.

You have only sixty days to deposit the funds in a new plan if you get the money in cash rather than transferring it directly to the new account. Missing the deadlines means that you opt to withhold taxes and penalties.

Bottom Line

Rolling over your 401(k) to a Roth IRA is an excellent way to grow and diversify your retirement savings.

It enables you to take advantage of both types of accounts' benefits.

Be sure to consider the pros and cons carefully before making a decision. Also, remember to consult with a financial advisor if you have any questions.


1. Can I roll over my 401(k) to a Roth IRA if I am still employed?

Absolutely, you can roll over your 401(k) to a Roth IRA even if you are still employed. However, you must ensure that your new employer's plan allows for in-service distributions.

2. What benefits of rolling over my 401(k) to a Roth IRA?

Some benefits of rolling over your 401(k) to a Roth IRA include having tax-free withdrawals in retirement, not being required to take Required Minimum Distributions (RMDs) at age 73, and being able to leave your Roth IRA to your beneficiaries.

3. What are some drawbacks of rolling over my 401(k) to a Roth IRA?

Some of the drawbacks of rolling over your 401(k) to a Roth IRA include paying taxes on the amount you roll over and potentially losing employer-matching contributions if you are still working.

4. How much can I roll over from my 401(k) to a Roth IRA?

There are no restrictions on how much you can roll over from your 401(k) to a Roth IRA. However, do not forget that you will have to pay taxes on the amount you roll over.

5. Do I need to pay taxes on my Roth IRA withdrawals?

No, you will not have to pay taxes on your Roth IRA withdrawals as long as you are over 59 and a half years old and have held the account for at least five years.

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