What is a rollover IRA?

A rollover IRA is a type of individual retirement account that you open specifically to move money from a workplace retirement plan, such as a 401(k). A rollover IRA generally has similar rules as a traditional IRA: You put pre-tax money into it and then, when you retire, you pay income tax on the money you withdraw. If you’re moving money between retirement accounts, you want to make sure the new account shares the same tax features as your old account. So regular 401(k) money goes to a rollover IRA, and money in a Roth 401(k) goes to a Roth IRA rollover account. Otherwise, you risk owing income tax and a 10% penalty on any money you move. What are the differences between a rollover IRA and a traditional IRA? A rollover IRA is very similar to a traditional IRA. In fact, usually a rollover IRA is a type of traditional IRA: Both accounts have pre-tax money sitting in them, and when you withdraw your money in retirement, you’ll owe income taxes. (Roth money would go into a Roth rollover.) A major difference between a rollover IRA and a traditional IRA is that there’s no maximum rollover amount. Say you have $10,000, $50,000 or even a few hundred thousand dollars (nice work, you) in your 401(k). You can roll that entire amount into your new rollover IRA. In contrast, a regular traditional IRA or Roth IRA has an annual maximum contribution limit of $7,000, or $8,000 if you’re 50 or older. (A rollover is not considered a “contribution” by the IRS.)

What are my choices if I have money in an old account?

If you have money sitting at an old or soon-to-be-ex employer retirement account, you have a few options: Leave the money where it is. Some employer plans offer a strong lineup of low-cost investments, so it may make sense to leave your money there. That said, there are two things to consider: Your old employer may not let you leave your money there, or it may charge administrative fees. (The fees may be worth paying if they’re low and the plan is particularly good.) Roll your money to an IRA. Choosing a broker like the ones we point to above can mean low fees, a wide range of investments, and helpful retirement-planning and investing tools. Plus, I personally love having all of my investment accounts in one place (except for that one old orphan 401(k) that I still need to rollover). Roll your money to your new employer’s retirement plan, if they allow it. Maybe it’s a really good plan, with low-cost investments (think mutual funds with expense ratios of 0.2% or less). I don’t even want to mention this one, but another option is to cash out your plan. You’ll owe income taxes and a 10% penalty on an early withdrawal, and that will truly shrink the amount of money that ends up in your hands, so ideally you don’t do this.

Can I roll over my 401(k) to a Roth IRA?

Yes, you can roll a 401(k) to a Roth IRA, but you’ll have to pay income tax on the entire rollover if your money is coming from a traditional 401(k). Paying all of that tax in one year may be fine for you — maybe your account balance is small and your tax bracket is low, or maybe you’re simply wealthy enough to afford the taxes and you want to get your money into a Roth — but generally, most people want to avoid that tax bill, so they roll their 401(k) into a traditional IRA. Here’s more on rolling a 401(k) to a Roth IRA . If your money is currently in a Roth 401(k) and you want to move it to an IRA, then you’ll want to roll your money into a Roth IRA to preserve the same tax treatment.

How do I roll over my 401(k) to an IRA?

Here are the steps to roll your money from a 401(k) into an IRA: Pick a broker and open a rollover IRA account. (If you have traditional, pre-tax money and Roth money in your 401(k), you’ll need to open a rollover IRA and a Roth rollover IRA.) Read the broker’s instructions for what to tell your old employer plan about doing a direct rollover. Doing a direct rollover is really important. If you don’t do a direct rollover, you’ll end up in an indirect rollover situation. Here’s what happens with an indirect rollover: The old plan will mail you a check made out to you. That company is required to withhold 20% of the money in your account to send to the IRS on your behalf (at tax time, you’ll get this money back). You’ll deposit the check (i.e. 80% of your original balance) into your new rollover IRA. But, and this is crucial, you need to come up with that missing 20% of your old account and also deposit that into your new rollover IRA, within 60 days, or the IRS will say you withdrew that money early, and you’ll owe income tax and a 10% early withdrawal penalty on that amount. Simply not fun. Avoid at all costs. Here’s what happens with a direct rollover (let me just say: So. Much. Easier.): The old plan mails a check for 100% of your account balance to your new broker. Your new broker deposits it. You never touch the money. Hey presto, that’s a direct rollover. Last step? Invest your money! We have a guide to investing for retirement .

Best Rollover IRAs of June 2024

Written by Andrea Coombes
Fact-checked by Dayana Yochim
Edited by Carolyn Kimball
Reviewed by Blain Reinkensmeyer

June 28, 2024

If you’ve got a retirement account such as a 401(k) sitting at an ex-employer, you may be wondering: “Should I roll my money to an IRA?” And the answer is likely a resounding “yes.” A rollover IRA at a top-tier broker like the six we highlight below can give you more control over your money, expand your investment choices, possibly save you money on investment costs and account fees, and help you consolidate your financial life in one place.

Full disclosure: I’m on the hunt right now for another rollover IRA (I’ve got an old 401(k) sitting with an ex-employer), so it was fun for me to check out what brokers have on offer. My investor.com colleagues and I opened accounts, researched rollover instructions, compared costs, and tested retirement-plan tools. Truth be told, I’m happy to DIY my rollover, but not everyone is, and not all brokers encourage that. Whatever your preference, it’s important to find a broker with clear, easy instructions, and hand-holding if you want it. Luckily, there are some great brokers for rollover IRAs.