Rolling your 401(k) into an IRA is usually one of your choices when you leave a job. But before you decide, it’s important to understand all your options. If a rollover is right for you, Schwab may have the right IRA for you.

  • There’s no fee to open or maintain our Rollover IRA. (Other account fees, fund expenses, and brokerage commissions may apply.)1
  • Account minimum: $1,000.2
  • Commissions: $4.95 per online equity trade;3 $0 per Schwab ETF OneSource online trade in your Schwab account.4

Discover more Rollover IRA features and benefits.

Ready to roll it over? Call a Schwab Rollover Consultant at 877-375-2937.

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Consider your options.

What’s best for you? There are several factors to consider based on your personal circumstances. Here’s help to make a smart decision.

Leave it in your former employer’s plan.

If your former employer permits, you can leave your money in your former employer’s plan, subject to the plan’s rules, investment choices, costs, and withdrawal options.

Pros

  • No immediate action is required.
  • Any earnings remain tax-deferred5 until you withdraw them.
  • You may have access to investment choices, loans, distribution options, and other services and features that are not available with a new 401(k) or an IRA.
  • You still have the option of rolling over to an IRA or to a 401(k) offered by a new employer in the future, if the new employer’s plan accepts rollovers.
  • Your former employer may offer additional services, such as investing tools and guidance.
  • Under federal law, assets in a 401(k) are typically protected from claims by creditors.
  • Your former employer’s plan may have lower administrative and/or investment fees and expenses than a new 401(k) or an IRA.
  • You may be able to take a partial distribution or receive installment payments from your former employer’s plan.
  • If you leave your job between ages 55 and 59½, you may be able to take penalty-free withdrawals.
  • Required Minimum Distributions (RMDs) may be delayed beyond age 70½ if you’re still working.

Cons

  • If you hold stock in your former employer’s plan, you may have special tax or financial planning needs you should consider before rolling over your assets to a new employer’s 401(k) or an IRA.
  • You can no longer contribute to a former employer’s 401(k).
  • Your range of investment choices and your ability to transfer assets among funds may be limited.
  • Managing savings left in multiple plans can be complicated.
  • The fees and expenses for your former employer’s 401(k) may be higher than those for a new employer’s 401(k) or an IRA.
Move it to your new employer’s plan.

If you’re starting a new job, you may be allowed to move your assets to your new employer’s plan so you can keep all your savings in one place. This can make sense if you prefer the new plan’s features, costs, and investment options.

Pros

  • Any earnings accrue tax-deferred.5
  • You may be able to borrow against the new 401(k) account if plan loans are available.
  • Under federal law, assets in a 401(k) are typically protected from claims by creditors.
  • You may have access to investment choices, loans, distribution options, and other services and features in your new 401(k) that are not available in your former employer’s 401(k) or an IRA.
  • The new 401(k) may have lower administrative and/or investment fees and expenses than your former 401(k) or an IRA.
  • Required Minimum Distributions (RMDs) may be delayed beyond age 70½ if you’re still working.

Cons

  • You may have a limited range of investment choices in the new 401(k).
  • Fees and expenses could be higher than they were for your former employer’s 401(k) or an IRA.
  • Rolling over company stock may have negative tax implications.
Roll your 401(k) into an IRA.

If you’re switching jobs or retiring, rolling over your 401(k) to a Roth or Traditional IRA may give you more flexibility in managing your savings while letting you grow your savings tax-free or tax-deferred (depending on the type of IRA).

Pros

  • Your money can continue to grow tax-deferred.5
  • You may have access to investment choices that are not available in your former employer’s 401(k) or a new employer’s plan.
  • You may be able to consolidate several retirement accounts into a single IRA to simplify management.
  • Your IRA provider may offer additional services, such as investing tools and guidance.
  • If you have a Roth 401(k), you can roll contributions directly into a Roth IRA tax-free, and your withdrawals from the Roth IRA will be tax-free as well.6
  • With a Roth IRA, you are not required to take Required Minimum Distributions (RMDs) at age 70½.

Cons

  • You can’t borrow against an IRA as you can with a 401(k).
  • Depending on the IRA provider you choose, you may pay annual fees or other fees for maintaining your IRA, or you may face higher investing fees, pricing, and expenses than you would with a 401(k).
  • Some investments that are offered in a 401(k) plan may not be offered in an IRA.
  • Your IRA assets are generally protected from creditors only in the case of bankruptcy.
  • Rolling over company stock may have negative tax implications.
  • At age 70½, RMDs are required from Traditional IRAs regardless of whether or not you are still working. (Roth IRAs do not require RMDs.)
  • Any Traditional 401(k) assets that are rolled into a Roth IRA are subject to taxes at the time of conversion.
Take a cash distribution.

This may sound like a good idea, but be sure you understand the consequences. Any withdrawals will be taxable and subject to a mandatory 20% withholding rate. You may also face early withdrawal penalties.

Pros

  • Having the cash could be helpful if you face an extraordinary financial need.

Cons

  • Taxes and penalties for taking a cash distribution may be substantial.
  • Withdrawals before age 59½ may be subject to a 10% early withdrawal penalty and will be taxed as ordinary income.
  • Your savings will no longer grow tax-deferred.5
  • Withdrawing your money may impact whether or not you have enough money for retirement.

Before you make a decision, be sure you understand the benefits and limitations of your available options and consider factors such as differences in investment-related expenses, plan or account fees, available investment options, distribution options, legal and creditor protections, the availability of loan provisions, tax treatment, and other concerns specific to your individual circumstances.


See what others are saying.

Average Client Rating
As of

Featured review for Roth and Traditional IRAs.

“I am sorry that I did not come to Schwab sooner. The force of habit made me reluctant to make the change. I am glad I did it only 5 months ago. All of my accounts are self-managed, but I still receive guidance whenever I need it.”

Written on 11/06/2016 by Publio8

Read more reviews and other important information about Clients Speak®, ratings and reviews by Schwab clients, including Publishing Guidelines.

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