Can You Transfer a Pension to a 401k?

Moving funds from a pension plan into a 401(k) is possible under specific circumstances, hinging on the rules of both plans. A pension, or defined benefit plan, is an employer-funded account designed to pay a predictable income in retirement. In contrast, a 401(k) is a defined contribution plan, funded primarily by the employee, where the final benefit depends on contributions and investment performance.

Determining Your Eligibility for a Transfer

The first condition for a transfer is that your pension plan must offer a lump-sum payout option, allowing you to take your entire benefit as a single payment. This option is not always available, and you must typically have a distributable event, like leaving your job, to access the funds. Some plans, like money purchase pensions, are structured around an account balance and are inherently a lump sum.

The second requirement is that your 401(k) plan must accept rollovers from a pension. Plan rules vary, and while it is common for 401(k)s to accept funds from other 401(k)s or IRAs, accepting pension assets is less so.

To confirm your eligibility, review the Summary Plan Description (SPD) for both your pension and your 401(k). These documents detail the rules for distributions and rollovers. If anything is unclear, contact the plan administrators directly for a definitive answer.

Key Factors for Your Decision

Once you confirm eligibility, you must evaluate several factors before proceeding. The decision involves trading a secure, lifelong income for control over a large sum of money that you become responsible for managing.

• Guaranteed Income vs. a Lump Sum: A pension provides a predictable, fixed income for life, shielding you from market risk. A lump sum gives you capital upfront, but you assume all responsibility for investing and managing it through retirement.
• Investment Control and Risk: Transferring to a 401(k) shifts investment control from professional plan managers to you. You become responsible for choosing investments from the plan’s menu and bear the full risk of market downturns.
• Spousal Protection: The Employee Retirement Income Security Act (ERISA) requires that the default payment for a married participant is a Qualified Joint and Survivor Annuity (QJSA). A QJSA provides lifetime payments to you and a continuing payment to your surviving spouse. To choose a lump sum, your spouse must provide formal, written consent waiving this right.
• Loss of Federal Insurance: Defined benefit pensions are insured by the Pension Benefit Guaranty Corporation (PBGC), which protects benefits if a plan fails. This insurance guarantees a portion of your pension up to a legal maximum, which for a 65-year-old in 2025 is $7,431.82 per month. This protection is forfeited when you take a lump-sum payout.

The Rollover Process Step-by-Step

To begin the process, contact both plan administrators to request the necessary distribution and rollover paperwork. You will need to formally elect the lump-sum payout on the distribution forms. If you are married, this packet will include the spousal consent waiver, which must be signed and properly witnessed or notarized.

You must then choose a rollover method, which has significant tax implications. A direct rollover is the simplest method. The pension plan administrator sends the funds directly to your 401(k) plan’s financial institution, and no taxes are withheld.

An indirect rollover is more complex. The pension plan issues a check to you after withholding a mandatory 20% for federal income taxes. You then have 60 days to deposit the full pre-tax amount of the distribution into your 401(k), which requires using your own money to replace the 20% that was withheld.

If you fail to deposit the full amount within the 60-day window, the shortfall is considered a taxable distribution. It may also be subject to a 10% early withdrawal penalty if you are under age 59 ½.

Alternatives to a 401(k) Rollover

If a rollover to your 401(k) is not possible or you decide against it, a common alternative is rolling the funds into a Traditional IRA. Most IRAs accept pension rollovers and provide a much broader range of investment options than a typical 401(k). However, unlike some 401(k)s, IRAs do not permit loans.

You can also choose to leave your benefit in the pension plan. This allows you to receive the monthly annuity payments you have earned upon reaching the plan’s retirement age. This option preserves the guaranteed income stream and other protections associated with the pension.

Another option is to use the lump-sum payment to purchase a commercial annuity from an insurance company. This may offer different features, but it requires careful research into the product and the insurer’s financial strength. These commercial annuities are not backed by the PBGC.