Quick summary

Moving an old 401(k) usually has two safe paths: a direct (trustee-to-trustee) rollover or an indirect rollover completed within 60 days. Direct rollovers avoid mandatory tax withholding and the 60-day risk; indirect rollovers require care because your plan administrator will generally withhold 20% of pre-tax distributions. Follow IRS rules and your plan’s terms to preserve tax deferral and avoid early-distribution penalties. (IRS: “Retirement Topics — Rollovers”, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-rollovers)

Why these rules matter

When retirement money leaves a qualified plan, the IRS treats the movement as either a rollover (tax-free if done right) or a distribution (taxable and possibly penalized). Mistakes cost money: taxes plus a 10% early-withdrawal penalty for most people under 59½. In my practice helping clients consolidate accounts, I’ve seen avoidable tax bills from missed 60-day deadlines and from choosing indirect rollovers without planning for the withheld amount.

How rollovers work — the two basic methods

  • Direct rollover (trustee-to-trustee): The plan administrator transfers funds directly to an IRA or another eligible employer plan. No mandatory withholding, no 60-day clock for you to redeposit the funds, and it’s the cleanest method for preserving tax deferral.

  • Indirect rollover: The distribution is paid to you. You then have 60 days to deposit the full amount into a qualified plan or IRA. For most pre-tax distributions, the plan administrator must withhold 20% for federal income tax. To avoid taxation on the withheld portion, you must make up that withheld amount from other funds when you complete the rollover within 60 days.

Authoritative guidance: IRS retirement rollover rules (see the IRS rollover page above) and the Social Security Administration’s rollover guidance (https://www.ssa.gov/benefits/retirement/planner/rollover.html).

Key IRS rules and tax consequences (what to watch for)

  • 60-day rule: With an indirect rollover, you have 60 days from receipt to redeposit the full eligible rollover distribution into a qualifying account. Miss it and the amount becomes taxable and may be subject to a 10% early-distribution penalty if you’re under 59½.

  • 20% mandatory withholding on eligible rollover distributions: If you receive the check, your former plan likely will withhold 20% for federal income tax (for pre-tax amounts). That withheld amount does count as taxes paid — but to avoid taxation on the entire original distribution you must replace the withheld portion from other funds and roll over the full distribution amount.

  • Trustee-to-trustee direct rollover avoids withholding and the 60-day risk.

  • Rollovers to Roth IRAs: Converting pre-tax 401(k) money to a Roth IRA is allowed, but it’s a taxable conversion; expect to owe ordinary income tax on the pre-tax balance in the year of conversion. Consider tax brackets and timing.

  • Employer plan acceptance: Not all employer 401(k) plans accept rollovers from outside plans. Confirm with the new plan’s administrator before initiating a move.

  • After-tax contributions and designated Roth accounts: Plans vary on how they accept after-tax basis or designated Roth amounts. After-tax balances may be rolled separately; an IRA rollover can create pro-rata complications when converting to Roth — check both plan rules and IRS guidance.

  • Loans and outstanding balances: If your old plan had a loan, the balance may become due when you leave. If not repaid, the outstanding loan may be treated as a distribution and taxed.

  • Required Minimum Distributions (RMDs): RMD rules can affect rollovers. As of 2025, the RMD age is 73 for many taxpayers under SECURE 2.0 rules. RMDs cannot be rolled over — if you’re required to take an RMD in a year, that portion is taxable and must be distributed.

(See IRS resources and Publication references on RMDs and rollovers at https://www.irs.gov.)

Step-by-step checklist to move an old 401(k) safely

  1. Review your old plan’s distribution options and any fees or restrictions. Note if your plan allows in-service distributions or has special rules for after-tax/ROTH balances.
  2. Decide the destination: traditional IRA, Roth IRA (taxable conversion), or a new employer’s 401(k). Compare fees, investment choices, creditor protections, and whether the receiving plan accepts rollovers.
  3. Prefer direct rollovers: Request a trustee-to-trustee transfer from the old plan to the receiving account. Provide the receiving account’s plan name, account number, and instructions.
  4. If you receive a check (indirect rollout), insist the check be made payable to the new trustee/plan for the benefit of you to reduce withholding risk. If the plan sends funds to you, understand the 20% withholding and plan to replace it.
  5. Track paperwork and timing: Confirm transfer dates, request confirmation from both trustees, and retain copies of distribution statements and any Form 1099-R the plan issues.
  6. Report on taxes: You’ll get Form 1099-R from the distributing plan and Form 5498 from the receiving IRA trustee (showing rollover contributions). Keep these for your tax return.
  7. If converting to a Roth, calculate expected tax and consider doing a partial conversion over several years to manage tax brackets.

Practical examples

Example 1 — Direct rollover (clean): You leave your job with $75,000 in a pre-tax 401(k). You request a direct rollover to your traditional IRA. The plan transfers $75,000 trustee-to-trustee. No withholding, no tax now.

Example 2 — Indirect rollover (risk): You request a distribution of $50,000 to your address. The plan sends you $40,000 after 20% withholding. To avoid tax on the full $50,000, you must deposit $50,000 into a qualified plan within 60 days — meaning you need to add $10,000 from other funds to complete the rollover. If you only roll over the $40,000, $10,000 is treated as a distribution (taxable and possibly penalized).

Example 3 — Partial Roth conversion: You roll $20,000 of a pre-tax 401(k) into a Roth IRA. You’ll owe income tax on that $20,000 in the conversion year, so plan for the tax payment from non-retirement funds if possible.

Common mistakes and how to avoid them

  • Assuming all new employer plans accept rollovers: Confirm acceptance before initiating a transfer. See our guide on Rollovers vs Transfers: Moving Retirement Accounts Safely.

  • Missing the 60-day deadline: Use direct rollovers to eliminate this risk.

  • Not replacing withheld tax in an indirect rollover: If your plan withholds 20%, you must make up the withheld amount to preserve the full rollover.

  • Ignoring plan loan rules: Check whether an outstanding loan becomes due at termination.

  • Overlooking RMD rules: RMDs can’t be rolled over; confirm whether you are subject to RMDs before moving funds.

When to consolidate and when to leave an old 401(k)

Consolidation can simplify management and may lower costs. However, some employer plans offer unique benefits (like low-cost institutional funds, loan features, or stronger creditor protection under ERISA). Compare options before moving money. For more on this tradeoff, see our article: Rolling Over Old 401(k)s: When to Consolidate and When to Leave Them.

If you’re changing jobs or retiring, also read our guide on Managing Retirement Accounts During a Career Transition for timing and strategy considerations.

Tax forms and documentation to expect

  • Form 1099-R: Issued by the plan that distributed funds. It reports distributions and rollover codes.
  • Form 5498: Issued by the IRA that received the rollover (often filed the year after the rollover). It reports rollover contributions.
    Keep these records in case the IRS has questions or to accurately prepare your tax return.

Professional tips and decision rules

  • Always prefer direct rollovers whenever possible — it removes the withholding risk and simplifies taxes.
  • If you get a check, confirm whether the check is made payable to the new trustee “for the benefit of” you; this reduces withholding issues.
  • Consider tax-bracket management before converting large pre-tax balances to Roth IRAs; spread conversions across lower-income years.
  • Confirm any plan-specific restrictions (e.g., whether the new employer’s 401(k) accepts rollovers, or whether your plan treats after-tax contributions differently).

Final checklist before you click “transfer”

  • Confirm the receiving plan accepts rollovers and which types (pre-tax, after-tax, Roth).
  • Request a direct rollover (trustee-to-trustee) in writing.
  • Confirm transfer dates and retain copies of statements.
  • Watch for Form 1099-R and file it correctly; if you completed an indirect rollover, ensure the withheld amount is replaced within 60 days if you want to avoid tax on that portion.
  • Talk to a tax professional if converting to a Roth or if you have after-tax basis in the account.

Disclaimer

This content is educational and is not individualized tax or investment advice. For advice tailored to your situation — including tax consequences of Roth conversions or handling after-tax contributions — consult a certified financial planner or tax professional. Relevant IRS guidance is available at the IRS rollover page cited above.

Authoritative resources

Further reading on our site: Rollovers vs Transfers: Moving Retirement Accounts Safely; Rolling Over Old 401(k)s: When to Consolidate and When to Leave Them; Managing Retirement Accounts During a Career Transition.

(Prepared by a financial educator with 15+ years of client-facing experience; verify specifics with your plan administrator and tax advisor.)