Rollovers — moving funds from a 401(k) or employer plan
A rollover moves money from an employer-sponsored retirement plan into an Individual Retirement Account. This article covers when a rollover applies, how the two methods work, and what to watch for on the tax side.
Steps / Explanation
A rollover is the process of moving retirement funds from one qualified account to another — for example, from a former employer's 401(k) into an Individual Retirement Account (IRA). In a direct rollover, funds move directly from one institution to another without passing through the account holder's hands. In an indirect rollover, the account holder receives the funds and must redeposit them into a qualifying account within 60 days to avoid taxes and penalties. Only one indirect rollover is permitted per 12-month period across all of an individual's IRAs.
Rollovers are not contributions — they do not count against the annual IRA contribution limit. They are also distinct from transfers, which move funds between two IRAs of the same type. See "Transfers — moving funds from another IRA" for the IRA-to-IRA path and "Direct vs. indirect rollovers — what's the difference?" for a side-by-side on the two rollover methods.
When a rollover applies
A rollover is the right tool when funds are being moved out of an employer-sponsored plan — typically a 401(k), 403(b), 457(b), or Thrift Savings Plan (TSP). Common situations:
You left an employer and want to move your 401(k) to your own IRA.
You are still employed but your plan allows in-service rollovers, often after age 59½.
A spouse beneficiary is moving inherited employer-plan funds into their own IRA.
You are consolidating multiple old employer plans into a single IRA for simpler management.
For movement between two IRAs of the same type, a transfer is the simpler and safer option.
Direct rollover
In a direct rollover, the employer plan sends the funds directly to Digital Trust, the custodian for your account, coordinated through the Retired.com platform — either by wire, ACH, or a check made payable to "Digital Trust FBO [your name] IRA." You never take possession of the funds.
The mechanics:
Open your IRA at Retired.com if you have not already.
Contact your former employer's plan administrator (or your existing recordkeeper) and request a direct rollover to your Retired.com IRA. The Service Team can provide the specific account information the plan administrator needs.
The plan administrator processes the rollover. Some plans send a check, made payable to the receiving custodian "for the benefit of" you — that check is still a direct rollover even though it physically arrives in your mail, because it is not payable to you personally.
Funds arrive at Digital Trust and are credited to your IRA.
A direct rollover is not subject to mandatory federal withholding and does not start a 60-day clock. It is the cleaner method for moving employer-plan funds.
Indirect rollover
In an indirect rollover, the employer plan distributes the funds to you. You then have 60 days to deposit the full amount into a qualifying retirement account or face the distribution being treated as a taxable distribution.
Two structural complications:
Mandatory 20% withholding. Employer plans are required to withhold 20% of an indirect rollover for federal income tax. To complete a full rollover, you must redeposit not only the 80% you received but also an equivalent of the 20% that was withheld — out of your own pocket — and recover the withholding when you file your taxes.
The 60-day clock. If you miss the 60-day window, the distribution is taxable and (if you are under 59½) subject to the 10% early-withdrawal tax under Internal Revenue Code §72(t).
For a more detailed comparison, see "Direct vs. indirect rollovers — what's the difference?"
Tax treatment
The general rule:
Pre-tax to pre-tax. Rolling a Traditional 401(k) into a Traditional IRA is a non-taxable event — no income tax is owed on the rollover itself.
Pre-tax to Roth. Rolling a Traditional 401(k) into a Roth IRA is a Roth conversion — the rolled-over amount is taxable as ordinary income in the year of the conversion. See "Roth conversions — how they work."
Roth 401(k) to Roth IRA. A direct rollover is non-taxable. The five-year clock and ordering rule that apply to Roth IRAs use the Roth IRA's history, not the Roth 401(k)'s — a fact worth verifying with a tax advisor in your specific situation.
We recommend consulting a tax advisor or attorney for guidance specific to your situation.
Reporting
Rollovers are reported on Form 1099-R by the sending plan and on Form 5498 by Digital Trust, the custodian for Retired.com accounts. On your personal tax return, the rollover appears on the IRA distribution line with "rollover" notation — even when no tax is owed — to reconcile the 1099-R with the 5498.
Common questions
Can I roll over my 401(k) while I am still working at the company?
Sometimes. Many plans allow in-service rollovers after age 59½, and some allow them earlier under specific conditions. Check with your plan administrator — Retired.com cannot determine your plan's rules.
Will my employer withhold taxes on a direct rollover?
No. Direct rollovers are not subject to the mandatory 20% federal withholding that applies to indirect rollovers.
Can I roll over after-tax 401(k) contributions to a Roth IRA?
Yes, in many cases — this is sometimes called a "mega backdoor Roth" pathway, though the specific eligibility depends on your plan's rules. We recommend consulting a tax advisor or attorney for guidance specific to your situation.
How long does a rollover take?
A direct rollover typically takes between one and four weeks once the sending plan begins processing, with most of that time spent at the sending plan rather than at Retired.com. Contact the Service Team for current expectations.
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