When you leave a job or want more control over your investments, you may need to move your retirement savings out of an employer-sponsored plan and into an account better suited for your needs. A rollover IRA gives you a way to transfer those funds while maintaining tax advantages. It can also unlock broader investment options, including access to alternative assets if you opt for a rollover to a self-directed IRA.

Before you move your funds, you must understand how a rollover IRA works, the rules you need to follow, and what considerations to keep in mind before you make the jump.

What is a Rollover IRA?

A rollover IRA is an individual retirement account you can use to transfer money from a qualified employer-sponsored plan, such as a 401(k), 403(b), or SIMPLE IRA, without losing your tax-deferred status.

One of the most common reasons to open a rollover IRA is to manage retirement funds after leaving an employer. However, you may also choose to open a rollover IRA to leverage existing savings to invest in other types of assets not available in your employer-sponsored plan.

Is a Rollover IRA a Traditional IRA?

A rollover IRA can be a Traditional IRA, but that’s not always the case—Roth rollover IRAs also exist.

According to data from the Plan Sponsor Council of America, more than nine out of 10 employer-sponsored plans offer a Roth option. Still, only 22% of retirement account holders chose to make Roth contributions when the opportunity was presented.

The right type of rollover IRA for you often depends on:

• Existing plan structure. If you have a traditional qualified account, like a Traditional 401(k). In that case, it’s generally easier to roll it into a Traditional IRA to preserve tax advantages and avoid any taxes associated with a Roth conversion
• Your current tax bracket. Moving funds from a Traditional account into a Roth IRA triggers income taxes during the year of the rollover. This may be an appealing option in a lower-income year or if you expect higher tax rates in retirement.
• Your long-term withdrawal strategy. Traditional IRAs require minimum distributions (RMDs) at age 73, while Roth IRAs do not. If you want more flexibility with withdrawals in retirement, a Roth may be a wise choice.

What’s the difference between a Traditional IRA and a Roth IRA? Traditional IRAs are funded with pre-tax dollars, and qualified withdrawals are subject to income tax. Roth IRAs are funded with after-tax dollars, and qualified withdrawals are tax-free.

Regardless of which type of Rollover IRA you choose, you’ll need to follow the same rules that apply to standard IRAs. Both Roth and Traditional accounts have annual contribution limits, but the initial rollover is not subject to contribution limits.

Can I Add Money to My IRA Later?

Yes, you can add money to your rollover IRA account later. However, like Traditional IRA contributions, they are subject to IRS contributions.

• 2025 contribution limit: $7,000, with a $1,000 catch-up contribution if you’re 50 or older.
• 2026 contribution limit: $7,500, with a $1,100 catch-up contribution if you’re 50 or older.

Direct vs Indirect Rollover

When you open a rollover IRA, you can move funds into the account using a direct or indirect rollover.

A direct rollover moves money from your employer-sponsored plan straight to your new IRA custodian.

• No taxes are withheld.
• Funds never pass through your hands.
• There’s no risk of missing IRS deadlines.
• This is the simplest and most common option.

With an indirect rollover, the funds are paid to you first and must be deposited into your new IRA within 60 days.

• Depending on the plan, prior custodians may withhold up to 20% for federal taxes.
• You must replace the withheld amount to avoid taxes and penalties.
• Missing the 60-day deadline turns the rollover into a taxable distribution.

Which option works best? Most investors use a direct rollover for simplicity and to avoid withholding rules and timing issues.

Is a Rollover IRA a Good Idea?

A rollover IRA may make sense if:

• You are leaving an employer, and your plan does not allow you to keep funds in the existing account.
• You have a retirement account with a new employer and would prefer to keep all existing retirement accounts under the same management umbrella.
• You prefer having more investment flexibility than your workplace plan allows.
• You want access to alternative assets, such as real estate, precious metals, private notes, or cryptocurrency, through a self-directed IRA.

Because every situation is different, it can be helpful to speak with a financial professional before making a decision.

Will I Owe Taxes On My Rollover IRA?

If you’re moving funds from a traditional 401(k) or other qualifying retirement accounts to a Traditional rollover IRA, you won’t owe taxes upon transfer as long as:

• You use the direct transfer method
• If you choose an indirect method, you must complete it within 60 days of taking possession of the funds.
• You’re making a transfer between like accounts (e.g., Traditional 401(k) to Traditional IRA)

If you plan to roll funds from a Traditional qualified retirement account into a Roth IRA, then you will need to pay income taxes for the year in which the rollover was completed. You might also face taxes (and penalties) if you fail to complete an indirect transfer within 60 days.

How Do I Know if I’m Eligible for a Rollover?

Eligibility depends on the type of account you have and your plan’s rules. For employer-sponsored plans, rollovers usually require a distributable event, such as:

• Leaving your employer for a new position
• A job termination or layoff
• Death
• Disability
• Reaching the age of 59 ½

Some plans also allow in-service rollovers, which let you move funds while still employed. If you’re not sure you’re eligible, contact your account administrator.

Is an IRA Safer than a 401(k)?

The safest retirement account for you depends on your unique situation; however, there are some considerations to keep in mind.

IRAs generally offer more investment flexibility. With access to a broader range of assets, especially in a self-directed IRA. You can build a more diversified portfolio that may help you navigate market volatility.

401(k)s offer stronger federal creditor protection. Because they are governed by the Employee Retirement Income Security Act (ERISA), 401(k) assets are typically shielded from most creditors. IRA protections vary by state, but all IRAs have strong protection in bankruptcy, and rollover IRAs that originated from an employer plan can retain ERISA-level bankruptcy protection.

If you’re not sure if an IRA is the safest option for you, speak with an expert who can help you evaluate your financial situation and choose a retirement account that meets your needs.

FAQ

Can I Roll Over a 401(k) to a Roth IRA?

Yes, you can move 401(k) funds into a Roth IRA, but the process varies depending on the type of 401(k) you have.

• If you have a Roth 401(k), you can roll your fund directly into the Roth IRA without worrying about immediate tax implications.
• If you have a traditional 401(k), you will need to pay income tax on the amount rolled into the new Roth IRA. That’s because traditional IRAs are funded using pre-tax dollars, while Roth IRAs are funded using taxed income.

Can I roll over multiple retirement accounts into one IRA?

Yes, you can consolidate multiple qualified retirement accounts into a single rollover IRA. This may simplify account management, reduce administrative fees, and make it easier to get an overview of your overall retirement strategy.

However, Roth and Traditional funds must stay separate. Roth assets must be rolled into a Roth IRA. Traditional assets can be rolled into a Roth IRA, but only through a taxable conversion.

Does a rollover IRA affect my contribution limits?

No. Rollover amounts do not count towards your annual IRA contribution limit. The IRS treats rollovers separately from regular contributions, so you can still make your full annual contribution, even after completing a rollover.

How long does a rollover or transfer into a self-directed IRA take?

Most SDIRA rollovers and transfers are completed within 5–15 business days, depending on how quickly your current custodian releases the funds. A direct transfer between custodians is typically faster than a rollover that requires issuing a check.

Delays can occur if additional documentation is required, if you hold complex assets, or if your current custodian uses manual processing. Working with an experienced SDIRA custodian can help streamline the timeline.

Can I move my SDIRA to a different custodian?

Yes. You can transfer your self-directed IRA to another custodian at any time through a direct trustee-to-trustee transfer. This process avoids taxes and penalties as long as the funds never pass through your hands.

Many investors switch custodians to gain access to better service, lower fees, or greater experience with specific asset classes. Before transferring, compare custodial fees, processing times, and support for the investments you currently hold.