Rollovers, transfers, and conversions

In short

You have probably stared at an old retirement account from a job you left years ago and wondered what to do with it. That feeling of not wanting to touch it, in case you break something, is one I understand well. A rollover, a transfer, and a conversion are three ways to move retirement money without losing it to taxes or penalties, if you follow the rules. Each one works differently. Knowing which is which can save you a real amount of money. This page walks you through all three.

The whole of it

What it is

A friend of mine once described these three words as if they were three different wagons headed to the same town by different roads. A rollover is when money leaves one retirement account, passes through your hands or goes directly to a new account, and lands in a similar kind of account. A transfer is a direct move between two accounts of the same type, and you never touch the money at all. A conversion is different from both. It moves money from a pre tax account, meaning one where you got a tax break when you put money in, into a Roth account, meaning one where your money grows and comes out tax free later. The key word with a conversion is that you pay income tax on what you move in the year you move it. That is the price of the trade.

How it works

I once watched a man try to move his old 401k by asking his former employer for a check. He cashed it. He did not know he had sixty days to put it into a new account. That story ends with a tax bill and a penalty. A rollover done that way, where the money touches your hands, is called an indirect rollover. The IRS gives you sixty days to deposit the full amount into a qualifying account. Miss that window and the IRS treats the money as a distribution, which means ordinary income tax plus a the current figure, which the official source publishes each year percent penalty if you are under 59½ for 2025 (source, checked 9/27/2026). You are allowed only one indirect rollover across all your IRAs in any twelve month period. That rule exists in the tax code and the IRS explains it on IRS.gov.

A direct rollover skips all of that. Your old plan sends the money straight to the new one. You sign some forms. Nothing hits your bank account. This path keeps the money from ever touching your bank account, so the sixty day clock never starts.

A transfer works the same clean way, but the word transfer is usually used when both accounts are IRAs at different institutions. You tell the new institution where the money is. They request it. It arrives. You never held it. Transfers are not limited the way indirect rollovers are.

A conversion asks you to do one extra thing. You move money from a traditional IRA or a pre tax 401k into a Roth IRA. The amount you move gets added to your taxable income for that year. If you convert $20,000 and you are in the 22 percent federal bracket, you owe federal tax of about $4,400 on that conversion, on top of whatever else you owe. The math is 22 percent of $20,000, which is $4,400. State taxes may also apply depending on where you live. The IRS page on Roth conversions at IRS.gov explains this clearly and is worth reading before you decide.

The numbers, and where to find yours

If you are holding a statement and wondering whether your account qualifies, the IRS keeps a chart of rollover options called the Rollover Chart on IRS.gov. It shows which account types can receive money from which other account types. That page is updated when Congress changes the law.

The yearly amount you are allowed to contribute to an IRA is the current figure, which the official source publishes each year. If you are the current figure, which the official source publishes each year or older, you may add a catch up amount of the current figure, which the official source publishes each year on top of that. For a 401k the annual limit is the current figure, which the official source publishes each year, with a catch up of the current figure, which the official source publishes each year once you reach the current figure, which the official source publishes each year. These numbers adjust over time. The IRS releases updated figures each fall on IRS.gov under the heading retirement plan contribution limits.

The contribution limits above apply only to new money you add yourself. The IRS explains on IRS.gov that rollovers and transfers are separate from those limits. Read the IRS Rollover Chart page for the rules that apply to your specific account type.

The early withdrawal penalty is the current figure, which the official source publishes each year percent. It applies if you take money out before age 59½ for 2025 (source, checked 9/27/2026) and no exception covers you. The IRS lists the exceptions to this penalty in IRS Publication 590 B, which you can find free on IRS.gov. That publication lists what qualifies, and the IRS is the source that reflects current law.

A worked example

Suppose Maria is 45 years old and she just left a job where she had a 401k worth $58,000. She wants to move it to a traditional IRA at a brokerage she already uses. She calls the brokerage first. They send her a form. She fills it out and names her old 401k plan as the source. The brokerage contacts the old plan directly. The old plan sends a check made out to the new brokerage, not to Maria. The full $58,000 lands in the new IRA. Maria owes zero tax on the move. No penalty applies. Nothing was withheld.

Now suppose Maria had requested the check in her own name instead. The IRS explains on IRS.gov that when a plan pays a distribution directly to a participant, the plan must withhold for federal income tax. Maria would receive less than the full $58,000. To complete the rollover and avoid tax on the full original amount, she would need to deposit the full $58,000 into a qualifying account within sixty days. That means coming up with her own cash to cover whatever was withheld. She could reclaim the withheld amount when she files her taxes, but she must have the cash on hand in the meantime. That part of the math can be unpleasant, since the withheld money is not in her hands.

Where it goes wrong

A friend of mine said the most expensive thing he ever did was wait. He left an old 401k sitting at a former employer for nine years. The plan charged fees he never noticed. Small fees compound just like returns do, only in the wrong direction.

A friend of mine missed his sixty day window by one day, and he learned how strict it is. The IRS does grant waivers in extreme cases, but the standard is high and the process is not simple. Missing the window by one day can cost real money.

I have heard of people rolling a Roth 401k into a traditional IRA by accident, and it is an easy mistake to make. The accounts do not match in type. You would be moving after tax money into a pre tax bucket. The IRS rules on this are specific and the outcome depends on how the receiving institution codes the transaction. When the account types do not match, the receiving institution may report the move in a way that creates a tax bill.

If you are thinking about a conversion, you have probably wondered how big a bite it takes. A large amount converted in one year can push income into a higher tax bracket than expected. There is no way to undo a Roth conversion once it is done. The IRS explains on IRS.gov that a Roth conversion can no longer be recharacterized, which is the word for undoing it. A conversion adds to taxable income for that year, so the size of the amount decides which bracket it lands in.

You have probably heard that different account types come with their own rules. The IRS Rollover Chart on IRS.gov covers the eligibility rules for each account type, including SEP IRAs, SIMPLE IRAs, and 403b plans. One detail worth knowing before you look it up is that a SIMPLE IRA carries a two year waiting period before you can roll it into most other account types. The chart lists the rules for each specific account type.

Questions to answer before you leave this page

If you are about to move retirement money, a few honest questions can save you grief, because the answers change which path fits your situation. Do you know the exact type of account you are moving money out of, and do you know the exact type of the account receiving it, because those two things must be compatible? Have you confirmed with the receiving institution that they will accept the transfer or rollover, since not every institution accepts every account type? Are you planning an indirect rollover, and if so, do you have enough cash on hand to cover any withholding so you can deposit the full amount within sixty days? If you are considering a conversion, have you estimated what the converted amount will do to your taxable income this year, and have you talked with a tax professional about whether this year is the right year to do it? Is there a two year clock running on a SIMPLE IRA you may have forgotten about? And finally, have you pulled up the IRS Rollover Chart on IRS.gov to confirm your specific move is permitted before you sign anything?