A 401(k) rollover is the process of moving money from an old employer-sponsored retirement plan into another qualified retirement account, such as an IRA or a new employer’s 401(k) plan.

For many people, this decision happens after changing jobs, retiring, or reviewing old retirement accounts that have been left behind. A rollover can help simplify your financial life, but it should be reviewed carefully so you understand the tax rules, investment options, fees, and how the move fits into your long-term retirement plan.

When you leave an employer, you generally have four options for your old 401(k):

1. Leave the money in your former employer’s plan, if the plan allows it.
2. Roll it into your new employer’s retirement plan, if available and accepted.
3. Roll it into an IRA
4. Take a cash distribution.

Each option has advantages and trade-offs. The right decision depends on your age, account balance, investment choices, plan fees, tax situation, and whether you want to consolidate your retirement accounts.

An IRA is an Individual Retirement Account. There are four types of IRAs:

• Traditional IRA
• Simple IRA
• Roth IRA
• SEP IRA

IRA accounts are similar to 401(k) accounts in that they’re tax-advantaged and there’s a 10% penalty if you withdraw money from them prior to age 59½. Some types of IRAs may also be subject to your current tax rate if you take money out early as well.

An advantage to having an IRA is that a wide variety of asset types can be included:

• Stocks
• Bonds
• Mutual funds
• ETFs
• Real Estate
• Private Placements
• Tax Liens

The type of IRA available to you depends on your employment status as well as taxable income. If you are opening the account as an individual, you may be able open an IRA: traditional or Roth IRA. If you’re a small business owner or if you’re self-employed, you may be able to open a simple or SEP IRA.

Traditional IRA

Your traditional IRA contributions are typically tax-deductible if you and/or your spouse are not covered by a plan at work. If you and/or your spouse are covered by a plan at work, your deduction is tied to certain income thresholds. Below is a table of the phase-out income ranges for tax deductions – if your income is above the listed ranges, your contribution is not tax deductible.

When you reach what the government calls “full retirement age,” you’re required to begin taking money out of your traditional IRA. Your “full retirement age” is based on the year you were born, as the table below shows. These deductions are called required minimum distributions (RMDs) and are calculated based on your life expectancy. Even if you’re required to take RMDs, you can still contribute so long as you’re still working. If you don’t take out the required amount, then there could be a tax penalty of up to 50%.

In addition, there are contribution limits for Traditional IRAs. In 2023, the max contribution limits are $6,500 for those under 50 years of age and $7,500 for those over.

Roth IRA

With a Roth IRA, contributions aren’t tax-deductible and there are no RMDs. Another feature is that any monies contributed to a Roth can typically be withdrawn at any time without any taxes or penalties. When you withdraw any gains, however, before age 59½ and do not use it on a qualifying expense, then you may have to pay a 10% penalty.

Yet some types of qualified distributions are tax- and penalty-free:

• Distributions from accounts opened for 5 years or longer as long as you are 59½ or older
• Distributions of contributions only (no gains)
• Distributions for qualifying expenses such as first-time home purchases, college expenses, and birth or adoption expenses.

There is also an income phase-out that determines whether you can contribute up to the maximum amount allowed.

As with the Traditional IRA, the same contribution limits apply.

Self-Directed IRA

A self-directed IRA (whether traditional or Roth) allows you to have more options for what kinds of investments you want to include in your IRA, including tax liens, private placements, and real estate. These are not as common and are only offered by a few institutions as they require more bookkeeping, depending on the types of investments held.

Rolling over a 401(k) into an IRA may give you more flexibility, a broader range of investment options, and the ability to bring old retirement accounts into one coordinated plan. This can make it easier to manage your retirement strategy, investment allocation, beneficiaries, and future income planning.

However, an IRA is not automatically the best choice for everyone. Some 401(k) plans offer low-cost investment options, access to certain protections, or features that may be valuable depending on your situation. Before making a rollover decision, it is important to compare fees, investment options, services, tax implications, and your overall financial plan.

Rolling an old 401(k) into your new employer’s plan may be a good option if your new plan accepts rollovers and offers strong investment choices, reasonable fees, and helpful plan features.

This option can keep your retirement savings in one workplace plan and may make it easier to track your progress. It may also be helpful if you want to preserve certain 401(k) plan features that are not available in an IRA.

Before choosing this path, review your new plan’s investment lineup, administrative fees, withdrawal rules, Roth options, and whether the plan accepts rollovers from a previous employer.

A direct rollover moves your retirement funds directly from your old 401(k) plan to another qualified retirement account, such as an IRA or a new employer’s plan. Because the money does not come directly to you, a direct rollover is often the cleaner and simpler approach.

An indirect rollover happens when the funds are distributed to you first. You generally have 60 days to deposit the money into another qualified retirement account. If you miss the 60-day deadline, the distribution may become taxable and may be subject to penalties.

For many people, a direct rollover helps reduce the risk of tax mistakes.

Cashing out a 401(k) can create immediate tax consequences and may reduce the amount available for your future retirement.

In many cases, a cash distribution from a traditional 401(k) is treated as taxable income. If you are under age 59½, you may also owe an additional 10% early withdrawal penalty, unless an exception applies. A cash-out may also interrupt years of potential tax-deferred growth.

Because of the potential tax impact, cashing out is usually a decision that should be reviewed carefully with a financial advisor and tax professional.

The 60-day rollover rule means that if retirement funds are paid directly to you, you generally have 60 days from the date you receive the distribution to roll the money into another eligible retirement account.

If the funds are not deposited within that window, the IRS may treat the amount as a taxable distribution. If you are under age 59½, an early withdrawal penalty may also apply.

Because timing and withholding rules can create complications, many investors prefer a direct rollover instead of receiving the money personally.

A properly completed rollover from a traditional 401(k) to a traditional IRA or another qualified retirement plan is generally not taxable at the time of the rollover.

However, taxes may apply if you roll traditional pre-tax 401(k) funds into a Roth IRA. This is commonly known as a Roth conversion, and the converted amount is typically included in taxable income for the year of the conversion.

Roth and traditional funds should be handled carefully so each type of money goes to the correct account.

Yes. If you have a Roth 401(k), you may generally roll those funds into a Roth IRA or another employer plan that accepts Roth rollovers.

If your old plan includes both traditional and Roth 401(k) money, those balances may need to be rolled into separate accounts: traditional funds into a traditional IRA or qualified plan, and Roth funds into a Roth IRA or qualified Roth account.

This is an important detail because mixing account types incorrectly can create tax complications.

A traditional IRA is generally funded with pre-tax money, and withdrawals in retirement are typically taxed as ordinary income. Traditional IRAs are also subject to required minimum distributions, known as RMDs.

A Roth IRA is funded with after-tax money. Qualified withdrawals may be tax-free if IRS rules are met. Roth IRAs also do not require lifetime RMDs for the original account owner, which can make them useful for long-term retirement and legacy planning.

The right account depends on your current tax situation, future income expectations, retirement timeline, and estate planning goals.

No. A rollover from a 401(k) into an IRA does not count toward your annual IRA contribution limit.

IRA contribution limits apply to new annual contributions, not rollover money. For 2026, the IRA contribution limit is $7,500, or $8,600 if you are age 50 or older. Rollovers are treated separately from those annual contribution limits. (IRS)

Traditional IRAs and most pre-tax retirement accounts are subject to required minimum distributions. Under current IRS rules, RMDs generally begin at age 73. Roth IRAs do not require lifetime RMDs for the original owner. (IRS)

If you are near or already taking RMDs, it is important to plan the timing of a rollover carefully. RMDs generally cannot be rolled over, and taking the wrong steps may create tax issues.

The IRS one-rollover-per-12-month rule generally applies to IRA-to-IRA rollovers, not direct trustee-to-trustee transfers and not most rollovers from a 401(k) to an IRA or another qualified plan. (IRS)

Because rollover rules can vary based on the type of account and how the funds are transferred, it is important to confirm the process before initiating a rollover.

Before rolling over a 401(k), consider:

• Investment options available in your current plan, new plan, or IRA
• Account fees and advisory fees
• Tax impact, especially with Roth conversions
• Access to your money and withdrawal rules
• Creditor protection differences between 401(k)s and IRAs
• Required minimum distribution rules
• Beneficiary planning
• Whether consolidation makes your financial life easier
• How the rollover supports your retirement income plan

A rollover is not just an account transfer. It is a retirement planning decision.

A Roth conversion is the process of moving money from a pre-tax retirement account, such as a traditional IRA or traditional 401(k), into a Roth IRA.

When you convert pre-tax retirement dollars to a Roth IRA, the amount converted is generally treated as taxable income in the year of the conversion. In exchange, the money has the opportunity to grow tax-free, and qualified withdrawals from the Roth IRA may be tax-free in the future if IRS rules are met.

A Roth conversion can be a helpful retirement planning strategy, but it should be reviewed carefully because it may increase your tax bill in the year you convert.

A Roth conversion may make sense if you expect to be in a higher tax bracket later, want to reduce future required minimum distributions, or want to create more tax flexibility in retirement.

It may also be worth considering during lower-income years, after retirement but before Social Security or required minimum distributions begin, or as part of a long-term estate and legacy planning strategy.

However, a Roth conversion is not right for everyone. The decision depends on your current income, tax bracket, retirement timeline, cash available to pay taxes, investment goals, and overall financial plan. Before converting, it is important to understand how the added taxable income could affect Medicare premiums, tax credits, deductions, and your broader retirement income strategy.

At AllGen Financial, we help clients evaluate whether a Roth conversion fits their bigger financial picture—not just for this year’s taxes, but for the future they are building.

At AllGen Financial, we help you look at your 401(k) rollover decision in the context of your full financial picture.

That means we review more than the account balance. We help you think through taxes, investment strategy, retirement income, risk, beneficiaries, and how this decision supports the life you are building for yourself and the people you care about.

Our goal is to help you move forward with clarity, confidence, and a plan that fits your path.

You may want to speak with a financial advisor if you recently changed jobs, are retiring soon, have multiple old 401(k)s, are considering a Roth conversion, are unsure about tax consequences, or want help coordinating your retirement accounts into one plan.

A rollover can be simple, but the decision behind it matters. Getting guidance before you move the money can help you avoid unnecessary taxes, missed opportunities, and decisions that do not match your long-term goals.