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Moving an old 401(k)

Last updated November 4, 2026

When you leave a job, you can usually leave its 401(k) where it is or move the money to an IRA. If you leave in or after the year you turn 55, the 401(k) lets you withdraw before 59½ with no 10% penalty. An IRA usually doesn't, so moving the money can bring the penalty back. How you move it also decides whether 20% is held back for tax.

In a direct rollover, the old plan sends the money straight to the new account, and nothing is held back. If the plan makes the check out to you instead, it holds back 20% for taxes. You then have 60 days to deposit the full amount, including the 20% you didn't receive. Any part you don't deposit is taxed as a withdrawal. The 20% counts as tax you've already paid, so if you deposited the full amount, it comes back when you file.

Pre-tax money rolls over to a traditional IRA with no tax due. Roth money rolls over to a Roth IRA. If you move pre-tax money into a Roth IRA, that's a conversion, and the amount is taxed as income that year.

The rule that waives the penalty is called the Rule of 55. It covers only the plan at the job you leave, and only if you leave in or after the year you turn 55. For public safety employees, the age is 50. While the money stays in that plan, withdrawals before 59½ owe no 10% penalty. An IRA has no such rule. Money moved into one owes the penalty on withdrawals before 59½, unless another exception covers them, such as a 72(t) schedule.

A 401(k) rollover usually sells your funds and sends cash. An IRA or a brokerage account can often move to another firm with the shares as they are.

Whether you can move money out of your current employer's plan while you still work there depends on that plan's rules.

A 401(k) usually has stronger protection from creditors than an IRA. Outside bankruptcy, how far an IRA is protected depends on your state.

Moving the money doesn't change what it earns. The funds you hold and their fees do.

If your plan has you leaving a job between 55 and 59½ (or 50 and 59½ for a public safety employee), a note appears under that job's account in Sections, under Accounts. From a year before you leave until you turn 59½, it also shows on your dashboard.