How Much Can I Rollover From 401k to IRA?

A 401(k) to IRA rollover is the process of moving retirement funds from a former employer’s sponsored plan into an Individual Retirement Account (IRA) that you control. This financial move is common for individuals changing jobs or entering retirement, as it allows them to consolidate savings and gain access to a wider array of investment choices. A rollover gives you direct oversight of retirement assets that were previously managed within your former employer’s plan.

Rollover Limits and What Can Be Transferred

The Internal Revenue Service (IRS) does not impose a dollar limit on the amount you can roll over from a 401(k) to an IRA. The entire amount eligible for transfer is determined by your “vested balance” in the 401(k) plan. This balance includes all of your own contributions and any employer contributions you have a right to keep based on the company’s vesting schedule.

A vesting schedule is the timeline an employer uses to determine when you gain full ownership of their contributions. For example, a plan might require three years of service before you are 100% vested in matching funds. If you leave before that period, you would forfeit the non-vested portion, which cannot be rolled over.

A rollover does not count toward the annual IRA contribution limits set by the IRS. For instance, if the 2025 annual contribution limit is $7,000, you could roll over a $200,000 vested 401(k) balance and still contribute the full $7,000 to your IRA in the same tax year. The rollover is a transfer of existing retirement assets, not a new contribution.

Items That Cannot Be Rolled Over

Certain items within a 401(k) are not eligible for transfer to an IRA. One common exclusion is an outstanding 401(k) loan. The loan must be repaid in full before the remaining assets can be rolled over. If you leave your employer with an outstanding loan balance, it is treated as a taxable distribution, subject to ordinary income tax and a 10% early withdrawal penalty if you are under age 59½.

Another item that cannot be rolled over is a Required Minimum Distribution (RMD). Individuals aged 73 and older are required to take annual distributions from their traditional 401(k)s. You must satisfy your RMD for the current year before you can proceed with rolling over the remaining funds. The RMD amount itself is ineligible for rollover and must be taken as a taxable distribution.

Types of Rollovers and Their Rules

There are two methods for executing a 401(k) to IRA rollover: a direct or an indirect rollover. The direct rollover is the simplest approach, where your former 401(k) plan administrator sends the funds directly to the financial institution managing your new IRA. The money never passes through your hands, and as a result, no taxes are withheld.

The second method is an indirect rollover. With an indirect rollover, the plan administrator sends you a check for your vested balance but is required to withhold 20% for federal income taxes. For example, on a $50,000 distribution, you would receive a check for $40,000, while the remaining $10,000 is sent to the IRS.

You then have 60 days from the date you receive the funds to deposit them into a new IRA. To complete a full, tax-free rollover, you must deposit the entire original distribution amount. In the $50,000 example, this means depositing the full $50,000 by using personal funds to cover the withheld amount. You can then reclaim the $10,000 withholding when you file your income tax return, but failing to deposit the full amount within the 60-day window results in the shortfall being treated as a taxable distribution.

Special Considerations for Rollovers

Certain assets and account types within a 401(k) have unique rollover rules. If you have contributed to a Roth 401(k), those funds should be rolled into a Roth IRA to maintain their tax-free growth and withdrawal status. This type of rollover is a non-taxable event. When these funds are moved, the five-year holding period for qualified Roth IRA distributions is a factor; if you roll over to a brand-new Roth IRA, a new five-year clock starts for determining qualified distributions of earnings.

It is also possible to roll funds from a traditional 401(k) into a Roth IRA, a process known as a Roth conversion. This is a taxable event where the entire amount you convert is added to your ordinary income for that tax year. While this results in an immediate tax liability, future qualified withdrawals from the Roth IRA will be tax-free, a strategic choice for those who anticipate being in a higher tax bracket during retirement.

A distinct strategy applies if your 401(k) holds highly appreciated stock of your former employer. You can use a tax rule for Net Unrealized Appreciation (NUA) by transferring the company stock to a taxable brokerage account instead of an IRA. With this strategy, you pay ordinary income tax only on the stock’s original cost basis at the time of the distribution. The NUA—the growth in the stock’s value—is not taxed until you sell the shares, at which point it is taxed at more favorable long-term capital gains rates.