Do I Have to Pay Taxes If I Transfer My 401k to an IRA When I Change Jobs?

As soon as you change jobs, your 401(k) offers several options: cash out, move it to your new employer’s plan or rollover into an IRA.

Direct rollover transfers the funds directly from one pre-tax account to the new. An indirect rollover involves your old plan sending you a check with taxes withheld; you have 60 days to deposit or face penalties.


Many individuals transfer funds from their former employer’s retirement account into an individual retirement account (IRA), when changing jobs. When completed correctly, this move should not be subject to tax.

Direct transfers offer the simplest method for rolling over an account. Simply contact your old plan administrator and request that a check be mailed directly to your new IRA provider, along with instructions as to its format and intended destination.

At times, an indirect rollover may be more suitable; your old plan sends you a check which you have 60 days to deposit into an IRA to avoid taxes and early withdrawal penalties. An indirect rollover often requires more work and often results in higher fees; many IRA providers provide lower-fee options than workplace plans such as no-load mutual funds and commission-free ETFs that could help keep fees lower than in an indirect rollover scenario. Whichever route you take afterward, be sure to review your taxes afterward


If you are transitioning funds from an old employer’s retirement plan into an IRA, typically their old company will send a check directly to the institution where your new account is being opened and you must deposit the money within 60 days in order to avoid incurring income taxes and penalties on any withdrawals made during this process.

Advisors often advise a direct rollover, wherein your plan administrator transfers the distribution directly to your new account. However, if that option doesn’t exist for your plan administrator or you simply prefer another approach, Form 5498 allows you to report this transaction and inform the IRS of a 60-day rollover process.

Option two is making a trustee-to-trustee transfer. Your financial institution should handle this transaction and may have its own internal regulations regarding such transfers. Unlike 401(k) withdrawals for early distributions, however, these transfers don’t incur the 10% early distribution penalty that applies when withdrawing early from an IRA; however, one transfer between accounts per 12-month period can occur; any subsequent withdrawals must be taxed at ordinary income rates.


The easiest, quickest way to roll over money is for your 401(k) provider to send the funds directly into your IRA. Each institution may have different procedures – be sure to adhere to them precisely or additional complications may arise. Some providers require checks be written out “for the benefit of” your IRA provider and include your account number on it.

An indirect rollover involves receiving a distribution check from your old plan, with 20% withheld for taxes, which must then be deposited into an IRA within 60 days or face an early withdrawal penalty of 10%. This option enables you to consolidate retirement accounts while taking advantage of lower fees associated with IRAs (they tend to offer cheaper plans than 401(k) plans), though it might limit investment options available to you.


Assuming you adhere to the rules of your current 401(k), and begin rolling over quickly, taxes won’t be due on your rollover. It is generally easier and will avoid mistakes such as having 20% withheld for taxes in an indirect transfer known as trustee-to-trustee rollovers.

Consider all aspects when making your choice when rolling over your retirement account, such as costs (look for brokers with $0 trading commissions), investment options, customer service and usability before selecting an IRA plan to roll your funds over into. An IRA typically gives more freedom when selecting where to invest compared to its 401(k) counterpart; additionally IRAs are available universally while employers can only offer them.

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

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