IRA / 401(k) Rollover
A rollover is the transfer of retirement funds from one tax-advantaged account to another — such as moving a 401(k) from an old employer into an IRA. Done correctly (direct rollover), no taxes or penalties apply. Indirect rollovers must be completed within 60 days to avoid taxes.
When you leave a job, you have four options for your 401(k): leave it with your old employer, roll it into your new employer's plan, roll it into an IRA, or cash it out (triggers income tax + 10% early withdrawal penalty if under 59½).
Rolling into a traditional IRA is usually the best move — you get access to a wider investment menu and potentially lower fees. A direct rollover (plan administrator sends funds directly to the new IRA custodian) has no withholding and no risk of triggering taxes.
An indirect rollover gives you the check directly; you have 60 days to deposit it into the new account. The employer withholds 20% for taxes upfront — you must deposit the full pre-withholding amount (including the 20% from your own pocket) to avoid tax on the withheld amount.
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- Traditional IRA
- A traditional IRA (Individual Retirement Account) is a tax-deferred retirement account. Contributions may be tax-deductible (depending on income and whether you have a workplace plan), and withdrawals in retirement are taxed as ordinary income.
- Roth IRA
- A Roth IRA is a US individual retirement account funded with after-tax dollars. Investments grow tax-free, and qualified withdrawals in retirement are completely tax-free.
- 401(k)
- A 401(k) is a US employer-sponsored retirement savings account. Contributions are pre-tax (traditional) or post-tax (Roth), grow tax-deferred or tax-free, and benefit from compound growth over decades.
- Vesting
- Vesting is the process by which an employee earns the right to keep employer-contributed retirement benefits over time. Before you are fully vested, leaving your job means forfeiting unvested employer contributions. Your own contributions always vest immediately.