What's So Great About an IRA Rollover?
Changing jobs can be a stressful experience. Even under the best circumstances, a career move requires a series of tough decisions, including what to do with the funds in your old employer-sponsored retirement plan.
Many people choose to roll over these funds into an Individual Retirement Account (IRA), and for good reason. IRAs now account for roughly 39% of total U.S. retirement market assets, and about 61% of traditional IRA-owning households hold IRAs that include rollover assets from an employer-sponsored retirement plan.¹,²
What Is a Rollover IRA?
A rollover IRA is an Individual Retirement Account that’s funded, in whole or in part, by moving money from a former employer-sponsored retirement plan, such as a 401(k), into an IRA. It allows you to preserve the tax-advantaged status of your retirement savings while gaining more control over how those funds are invested.
4 Options for Your Old Employer-Sponsored Retirement Plan
When you leave a job, you generally have four choices for handling the money in your former employer’s retirement plan.
1. Cash Out the Account
If you cash out, you may owe ordinary income tax on the balance, plus a 10% early withdrawal penalty if you’re under age 59½.
2. Leave the Funds in Your Old Plan
Some plans allow you to leave your balance where it is. However, many plans have rules and restrictions on accounts left behind by former employees.
3. Roll Over the Assets to Your New Employer’s Plan
If your new employer offers a retirement plan that accepts rollovers, you may be able to transfer your balance directly into it.
4. Roll the Money Into an IRA
An IRA rollover, or 401(k) rollover to IRA, may help preserve the tax-favored status of your retirement money.
How does a rollover avoid taxes? As long as your funds are moved through a direct “trustee-to-trustee” transfer, you can avoid triggering a taxable event.³ In a traditional IRA, your retirement savings continue to grow tax-deferred until you begin taking distributions in retirement.
IRA Rollover Benefits
Rolling over retirement funds can make it easier to stay organized and maintain control over your savings. Many people change jobs several times throughout their careers, leaving behind a trail of employer-sponsored retirement accounts.
By consolidating these accounts into a single IRA, you may be able to more easily:
- Manage your retirement funds in one place
- Rebalance your portfolio
- Adjust your asset allocation as your goals change
IRA Rollover Rules to Know
The Internal Revenue Service has published specific guidelines on IRA rollovers. Since January 1, 2015, the following rules have applied:
- You generally cannot make more than one rollover from the same IRA within a one-year period.
- You also cannot make a rollover during that one-year period from the IRA to which the original distribution was rolled over.⁴
What FINRA Says About Rollover Decisions
The Financial Industry Regulatory Authority (FINRA) has published guidance to help investors understand their rollover choices. Before deciding whether to keep assets in a 401(k) or complete a rollover to an IRA, FINRA recommends considering factors such as:
- Investment options
- Fees and expenses
- Available services
- Withdrawal penalties
- Protection from creditors and legal judgments
- Required minimum distributions
- Possession of employer stock⁵
Is an IRA Rollover Right for You?
An IRA rollover may make sense whether you’re changing jobs or retiring altogether. How your assets should be allocated within the IRA will depend on your time horizon, risk tolerance, and financial goals.
For residents of Fort Myers and Southwest Florida navigating a job change or retirement, a financial professional can help evaluate your rollover options and determine the right strategy for your retirement account.
Frequently Asked Questions
What is an IRA rollover?
An IRA rollover is the process of moving funds from an employer-sponsored retirement plan, such as a 401(k), into an Individual Retirement Account, typically to preserve the tax-advantaged status of the savings.
What is a rollover IRA?
A rollover IRA is an IRA account funded specifically by transferring money from a former employer’s retirement plan rather than through regular annual contributions.
What are my options for an old 401(k)?
You generally have four choices: cash out the account, leave the funds in your old plan, roll the assets into your new employer’s plan, or roll the money into an IRA.
What are the benefits of an IRA rollover?
IRA rollover benefits include preserving the tax-deferred status of your retirement savings, consolidating multiple retirement accounts into one, and gaining more flexibility to manage, rebalance, and adjust your investment allocation.
What are the IRA rollover rules?
Since January 1, 2015, you generally cannot make more than one rollover from the same IRA within a one-year period, and you cannot roll over funds again from the IRA that received the original distribution during that same one-year period.
How do I avoid taxes on a 401(k) to IRA rollover?
To avoid a taxable event, your funds should be moved through a direct trustee-to-trustee transfer rather than being distributed to you directly first.
1. Investment Company Institute, “The Role of IRAs in US Households’ Saving for Retirement,” 2025.
2. Distributions from traditional IRAs and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 73, you must begin taking required minimum distributions. If the account owner switches jobs or gets laid off, any outstanding 401(k) loan balance becomes due by the time the person files his or her federal tax return. Prior to the 2017 Tax Cuts and Jobs Act, employees typically had to repay loans within 60 days of departure or face potential tax consequences.
3. The information in this material is not intended as tax advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult a tax professional for specific information regarding your individual situation.
4. IRS.gov
5. FINRA.org
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult a legal or tax professional for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
