Key takeaways

• A rollover IRA is an IRA funded with money rolled over from eligible retirement plan, often used to consolidate 401(k)s after leaving a job.
• IRA rollovers allow you to keep retirement savings in a tax-advantaged account, and the money you roll over doesn’t count toward your annual IRA limit.
• Direct rollovers from an employer retirement plan to an IRA avoid taxes; indirect rollovers trigger 20% withholding and must be deposited into an IRA or other eligible retirement plan within 60 days to avoid taxation.

A rollover IRA is an individual retirement account (IRA) funded with a rollover from a former employer-sponsored retirement plan, such as a 401(k), 403(b), 457(b), or pension. Around 61% of households who own traditional IRAs say their accounts contain rollovers from employer-sponsored plans.¹

IRA rollovers are common when leaving a job with a 401(k) or 403(b). They can also be used to consolidate funds after inheriting a retirement account or finishing school with unused 529 funds. In general, IRAs are relatively simple to open and maintain, making them a valuable tool for retirement planning.

What is a rollover IRA?

A rollover IRA is an individual retirement account (IRA) that holds money rolled over from a retirement plan you had with a former employer, such as a 401(k), 403(b), 457(b), or pension plan. Depending on the type of retirement savings you’re moving, the money may be rolled into a traditional IRA to preserve its current tax treatment or into a Roth IRA. Because a rollover moves existing retirement savings rather than adding new contributions, it does not count toward the annual IRA contribution limit.

Read more: Rollover IRA vs IRA contributions: How do they differ?

Benefits of IRA rollovers

A rollover IRA can help keep retirement savings in one place while preserving the tax-advantaged status. The main benefits are simpler account management, broader investment choice, and the flexibility that may come with choosing your own IRA provider.

• Account consolidation: You can have all your retirement dollars in one place rather than keeping funds in multiple retirement plans as you leave jobs or inherit an IRA. Combining accounts may help simplify tax reporting and calculating required minimum distributions. Combining your old 401(k)s can offer several other benefits as well.
• Investment flexibility: IRAs may offer a wider variety of investment options that go beyond the 401(k) investment options your employer plan provides. Many IRA providers don’t have annual administration fees; the only fees you typically pay are those that apply directly to your investments or advisory services you utilize.

Read more: 5 IRA benefits for retirement planning

How to begin an IRA rollover

To begin rolling over your funds to an IRA, follow these steps:

1. Determine your rollover approach: Decide whether you’ll roll over your existing plan to a traditional or Roth IRA. Check with your existing plan to determine whether you’ve made contributions on a traditional pre-tax basis or Roth after-tax basis. Funds from a pre-tax account can be rolled over to a traditional or Roth IRA, but funds from a Roth account can only be rolled over to a Roth IRA.²
2. Open your IRA: If you don’t already have an IRA, you will need to open one. You can open an IRA online at a variety of institutions, such as a financial services provider, bank, or even a mutual fund company. While many IRAs don’t have minimum deposits, others may require a specified initial investment.
3. Initiate the rollover: Contact both your current plan administrator and the new financial services provider to gather specific details on how to roll over your funds. Submit the necessary forms for the rollover request.
4. Wait for the rollover request to be processed: Your current plan administrator will process the distribution.
5. Track your rollover: Once the distribution is processed, the funds will either be sent directly to your rollover IRA provider or to you in a check made payable to your IRA. For direct rollovers, a check is typically made payable to the financial services institution for the benefit of your IRA. If a rollover check is made payable directly to you, you are required to deposit the money into your IRA within 60 days of receiving the check to avoid income taxes and a possible early withdrawal penalty.
6. Invest your IRA funds: After the funds are received by the new plan or IRA, you'll need to choose your investment allocation in the new account or utilize an investment advisory service. If you’re unsure how to select your investments, it may be beneficial to work with a financial professional.

Once you’ve finished rolling funds into an IRA, it’s important to monitor your investments and assess your account to ensure you’re building the savings you need for financial security in retirement.

Read more: How much should I save for retirement?

IRA rollover rules

Before beginning your IRA rollover, it’s good to be aware of several rules that can help inform your rollover strategy.

Direct vs. Indirect rollovers

There are two ways to roll over funds into an IRA: direct and indirect rollovers. A direct rollover allows your retirement savings to be paid directly from one plan or IRA to another, while an indirect rollover involves you receiving this money first.

Direct rollovers

Direct rollovers, also referred to as trustee-to-trustee transfers, are rollovers not made payable to the investor themself; instead, the money is paid directly to the new financial institution. An example would be the plan administrator of an old 401(k) making the rollover check payable to the institution where you’ve opened a rollover IRA.

Indirect rollovers

With indirect rollovers, money from a tax-advantaged retirement plan is paid directly to you, usually electronically to your bank account or by check. The responsibility then falls on you to transfer that money within 60 days into another eligible retirement account, like an IRA.

Funds withdrawn from an IRA will reflect a 10% withholding, but you can elect out of this withholding or choose to have a different amount withheld. With other retirement accounts, such as employer-sponsored plans, amounts paid directly to you will be subject to a mandatory federal tax withholding of 20%. This 20% will have to be funded from another source because the full amount of the distribution must be deposited into the next retirement account completely, or it could be considered taxable

You are only allowed to make one indirect IRA-to-IRA rollover within a given 12-month period.³ This does not apply to rollovers from traditional to Roth IRAs (also known as Roth conversions).

Rollover IRA taxes and the 60-day rule

With indirect rollovers, you are responsible for depositing your rollover funds into your IRA within 60 days to avoid it being counted as a taxable, early distribution. Funds rolled over between pre-tax accounts, such as a standard 401(k) to a traditional IRA, are not subject to taxes if done within the 60-day period. However, funds rolled over from a pre-tax account, such as a standard 401(k), into a Roth IRA will be subject to ordinary income taxes regardless of the 60-day rule.

Read more: Rollover IRA taxes and the 60-day rule

Can you contribute to a rollover IRA?

Once you have rolled funds into an IRA, you can begin contributing as you would any other individual retirement account. If you have multiple IRAs, keep in mind that the annual IRS contribution limit applies to all of your IRAs combined. It’s also possible to contribute to both a 401(k) and an IRA, though you may face some limits on your ability to deduct your IRA contributions.

What can’t be rolled over?

The IRS limits the types of funds that can be rolled over from IRAs and other retirement plans.

From IRAs, you cannot roll over:

• Required minimum distributions (RMDs)
• Excess contributions and related earnings

From retirement plans, such as 401(k)s, 403(b)s, and 457(b)s, you cannot roll over:

• Required minimum distributions (RMDs)
• Excess contributions and related earnings
• Distributions that are part of a series of substantially equal payments
• Distributions to pay for accident, health or life insurance
• S corporation allocations treated as deemed distributions⁴

There may be additional rollover limitations depending on your plan, especially if you’re still working for the employer offering the retirement account. It’s worth checking with your plan administrator before initiating a rollover.

How many IRA rollovers can I make?

There are no limits on the number of direct rollovers and Roth conversions that you can make, although you are limited to one indirect IRA to IRA rollover within a given 12-month period.

Rollover IRA vs. Roth IRA conversions

A rollover IRA is typically used to move money from an old employer-sponsored retirement plan into an IRA without changing its tax-advantaged status. A Roth IRA conversion is different: It moves eligible retirement savings, often from a traditional IRA or pre-tax retirement account, into a Roth IRA. The converted pre-tax amount is generally included in taxable income for that year in exchange for the potential for tax-free qualified Roth withdrawals later.

The bottom line

A rollover IRA can be a useful way to move money from an old workplace retirement plan into an IRA while preserving the account’s tax advantages. Before moving money, review your existing plan’s requirements and pay close attention to any indirect rollover rules, timing considerations, fees, and potential tax consequences to make sure your next step fits your broader retirement strategy.