How to Avoid Losing Money When Rolling a 401(k) Into an IRA

Both 401(k)s and IRAs are good investment options when you’re saving for retirement. Over the course of your career, there may be times where you need to or want to roll over a 401(k) to an IRA. Here’s what to know about making this move.

• A 401(k) is a retirement investment account you can fund through your employer. These accounts have higher contribution limits than IRAs — $23,500 in 2025 and more for people aged 50 and older. In addition, your employer might contribute some money for you. 
• You can open an IRA through a bank or a brokerage firm. It’s not linked with your job. Though you can’t contribute as much as a 401(k) - $7,000 in 2025 or $8,000 if you’re 50 and older, people may choose IRAs over 401(k)s because IRAs typically have more investment options. 

Reasons to Roll Over a Traditional 401(k) Into an IRA

The main reason you may want to roll your investments from a 401(k) to an IRA is if you leave your employer. If you cannot keep your retirement savings at your old employer, you will need to take action. You could move the money to a 401(k) at your new employer or complete an IRA rollover. You could also cash it out, but that is not recommended because you would have to pay taxes plus a penalty if you’re under age 59½.

You may also want to rollover your investments if your employer doesn’t offer many investment options. With a 401(k), your options are limited to those the plan administrator has included. When you have an IRA, you can choose from a wide range of securities including but not limited to index funds, mutual funds and stocks, including low-fee options. 

How to Make the Move

The best option is usually a direct rollover. That’s where your investments are liquidated, and the money is transferred from the financial institution that has your 401(k) to the one where you want your IRA. You can roll the money into a traditional IRA and the taxes will continue to be deferred or you can roll it into a Roth IRA and pay taxes now. A financial professional can walk you through the pros and cons of these options based on your situation.

An indirect rollover is also an option. That’s where your employer issues a check to you and you have 60 days to put those funds into an IRA. If you miss the deadline, it’s considered a distribution, subject to taxes and penalties. This is a little riskier and more complicated, so most people prefer a direct rollover.

It’s important to note that even if you have a 401(k) through a new employer, you can continue to contribute to your IRA. Many people save for retirement with both kinds of accounts, so you don’t necessarily have to choose. Just make sure that you’re putting enough in your employer-sponsored plan to take advantage of any match they offer, otherwise you may be leaving money on the table.

Get Guidance Tailored to Your Goals

Whether you’re considering rolling over a 401(k) to an IRA or you simply want to make sure your retirement investments align with your goals, a Farm Bureau agent or financial advisor can help.