How Do I Transfer My 401k to a Roth IRA Without Paying Taxes?

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Investing for your future is crucial for a successful retirement, but because there are so many investment options, figuring out how to invest and save properly can be challenging. Rolling over your 401k into a Roth IRA can further complicate things, especially with the potential taxes and fees involved. Fortunately, there are ways you can roll over your 401k without too much hassle while avoiding additional taxes.

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How Do I Transfer My 401k to a Roth IRA Without Paying Taxes?

Things to Consider Before Diving In

In many circumstances, rolling over a 401k into a traditional or Roth IRA can be done without paying additional tax penalties. You can also roll over a 401k into a precious metals IRA, and you won’t usually need to pay taxes. Many people prefer to roll a 401k over into a precious metals IRA because precious metals, such as gold and silver, are a much more secure investment. Precious metals almost always trend upward in value, so inflation is less likely to affect your retirement savings.

It's also a good idea to understand the basic differences between a 401k, a traditional IRA, and a Roth IRA. A 401k is quite similar to an IRA in most ways, except that 401ks are offered by employers. An IRA is opened by an individual using a bank or broker. A 401k allows for higher annual contributions, while an IRA generally offers more investments.

There are also differences between traditional and Roth IRAs. With a traditional IRA, you won’t pay any taxes up front, but you’ll need to pay taxes when you begin taking distributions. Roth IRAs are more often used for high-risk investments that will, hopefully, offer a high reward later on. With a Roth IRA, you’ll pay income taxes up front, but you won’t need to pay any taxes when you take distributions from the account.

Now that you have a clear idea of some of your investment options, it’s time to look at how you can roll over your 401k into an IRA.

How Do I Transfer My 401k to a Roth IRA Without Paying Taxes?

Rollover 401k to IRA Transfer Explained

As the name suggests, a rollover is a transfer of funds from your 401k into an IRA. Most people choose a rollover if they’re moving from one company to another. If you leave a particular company, you won’t be able to contribute or have your employer contribute to your 401k anymore, so a rollover at that time makes sense. However, when you leave a company, you’ll have three different options regarding your 401k.

Rollover a 401k into an IRA

Rolling over a 401k is a popular option for a few reasons. You can roll over your 401k without paying any additional taxes or being subjected to penalties, so you’ll save money. Switching to an IRA also gives you more control of your investments, and you can choose to invest in stocks or precious metals such as gold.

Cash Out the 401k

You always have the option of cashing out your 401k and taking the money immediately. However, you will be taxed on any money you cash out of the 401k. If you are under 59.5 years old, you’ll also be subject to a 10% penalty fee.

Leave the 401k Alone

Finally, you can leave your 401k alone. With this option, you won’t be charged any taxes. You won’t be charged any early withdrawal fees, either, if you’re under 59.5. Instead, you can simply leave your money invested, and your investments will continue to grow. You can leave your 401k untouched until you’re 70.5 years old, at which point you must legally begin taking at least the minimum distributions.

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How Do I Transfer My 401k to a Roth IRA Without Paying Taxes?

Consequences to Consider

Although rolling over a 401k into an IRA is relatively straightforward, there are a few things to think about before deciding if it’s the right choice for you.

Roth Conversions

Many people convert their 401k into a Roth IRA instead of a traditional IRA. Even though these IRAs are usually used for high-risk investments, converting your traditional 401k into a Roth IRA means you’ll only need to pay taxes on the money you contribute and not the distributions you take later.

Double Taxes

You can also roll over a 401k into a traditional IRA. However, this is not always the best option, as you may need to pay taxes twice. When you roll over the 401k, you’ll pay taxes on your money at the time. Then, you’ll pay taxes again on the money distributions you take.

Early Withdrawal Penalty Avoidance

It’s always vital to ensure that the rollover is performed and completed properly. Otherwise, the rollover might be considered a withdrawal, and you’ll be subject to an early withdrawal fee.

Avoiding the Required 20% Withholding

If you want more control over your money and decide to take all or part of it out of your 401k, your provider must legally withhold 20% of it for federal income taxes. However, if you roll over into an IRA instead, there is no federal withholding.

Borrowing from Your IRA

Once you’ve rolled your 401k over into an IRA, you may be able to borrow from that IRA if you need to. This is an excellent option that gives you more flexibility and control over your money. If you borrow from the IRA and don’t repay the loan, though, you will need to pay taxes and penalty fees.

How Do I Transfer My 401k to a Roth IRA Without Paying Taxes?

Benefits of a Rollover 401k to IRA Transfer

As briefly mentioned above, there are many benefits to rolling over your 401k into an IRA.

Control Over Your Investment Choices

One of the biggest reasons to roll over your 401k is that you will gain much greater control over your money and investment options. You’ll also have the option to change your investments into precious metals.

Consolidate Your Accounts

You can have a 401k at each place you’re employed, so if you have multiple jobs or work for different companies, you may have more than one 401k. Rolling all your 401ks over into a single IRA can consolidate your accounts, simplifying your investments and options.

Lowered Expenses

A 401k generally has high fees, and rolling it over into an IRA can often reduce these fees.

Rollover 401k to IRA Process

Although it seems complicated at first, rolling over a 401k into an IRA is relatively straightforward. The first step is to open an IRA account with a financial institution, such as a bank. Next, you’ll want to get in touch with a plan administrator. An administrator can answer any questions you have, and they’ll also help you through the rollover process.

After letting your plan administrator know that you want to do a rollover, a direct rollover will be requested. The money from your 401k will then be transferred directly to your IRA. You will also need to complete some paperwork for your bank.

As soon as your funds are transferred, the rollover is complete. From here, you’ll be able to monitor your funds and savings and invest in whatever ways seem like the right choice for you.

How Do I Transfer My 401k to a Roth IRA Without Paying Taxes?

Rules Regarding a 401k to IRA Rollover

The rollover process is easy, but there are a few rules and regulations to remember.

60 Day Limit

Rollovers need to be completed relatively quickly. Once the funds are removed from your 401k, you’ll have 60 days to have them transferred into your IRA. For this reason, a direct rollover, which involves a direct transfer, is the best option. If the transfer isn’t completed within 60 days, the removal of the funds from your 401k will be considered a lump sum distribution, and you may be subject to penalty fees and taxes.

Most employers require a direct rollover, so although this time frame may seem short, it usually isn’t an issue.

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How Do I Transfer My 401k to a Roth IRA Without Paying Taxes?

Rollover Requirements

Unfortunately, you can’t roll over a 401k into an IRA except under certain circumstances. If you’re leaving your company, you’ll be able to perform a rollover. The same is true if your company is ending the 401k plan. Otherwise, you won’t usually be able to roll over the 401k without paying fees and taxes.

Partial Rollover Options

If you have more than one 401k, you may want to perform a partial rollover. This is a good way to ensure that your investments are more secure, although you won’t be able to consolidate your accounts. With a partial rollover, part of your funds will remain in each 401k.

Tips and Tricks

Learning a few tips regarding the rollover process can make the entire situation even simpler.

Talk with a Professional

One of the best things you can do while deciding whether to roll over a 401k is to talk with a professional. A plan administrator can walk you through your options and ensure that you’re eligible for a rollover that won’t cost you anything in fees or taxes. These administrators can also walk you through the paperwork required by your financial institution.

Talking with a tax professional is also a great idea. If there’s any chance of being taxed during the rollover, a tax professional can point it out and possibly help you avoid it.

With an IRA, you’ll be in charge of your investment options. However, this isn’t always a comfortable situation, especially for people who don’t have much investment experience. To make this part simpler while still maintaining control of your IRA, you can hire an investment advisor. An investment or financial advisor can help you make wise investment choices that work for you and your situation.

Learn About the Fees

Like a 401k, all IRAs have fees. These fees are usually lower than those associated with a 401k, but it’s important to understand them before deciding on an account, so you can choose what’s best for you.

Compare Account Options

Traditional and Roth IRAs both offer pros and cons when it comes to rollover options. Although most people choose to roll over into a Roth IRA, this may not be the best choice for you. Talk with an advisor to discuss the options and decide which IRA to choose.

Start the Process Early

If you feel that a 401k rollover might be a good choice in your future, start the process as early as possible. Open an IRA and let your plan administrator know what you’re thinking of doing. Once the process has started, don’t wait to complete it. Instead, make sure the funds are transferred as soon as possible so they’re in your new IRA well before the 60-day deadline.

Maintain Records

Although mistakes are rarely made during a 401k rollover, they can happen. Throughout the entire process, maintain good records, and keep track of your account to make sure everything has been completed properly.

How Do I Transfer My 401k to a Roth IRA Without Paying Taxes?

401k to IRA Rollover: The Right Choice for You

For many people, rolling over a 401k into an IRA is a smart choice. However, each person’s situation is different, and it may not be the best option for you. It’s always crucial that you carefully consider your options and whether the rollover will benefit you before committing to it. It’s also a good idea to consider a few things about your financial situation.

Current Situation and Future Goals

If you’re happy with your company and don’t have plans to leave, rolling over your 401k probably isn’t a good option. Only if you’re getting ready to change companies or retire should you consider a rollover. Similarly, if you’re happy with your 401k, there’s little need to perform a rollover, even if you do leave your company.

If you are planning to retire shortly, a rollover might not be necessary, as you’ll probably begin taking distributions. If you’re not retiring for some time, though, a rollover can make investing simpler by consolidating your savings.

Investment Options

Although an IRA offers you different investment options than a 401k, you may find those investment choices more limiting for your situation. Compare the investment options offered by both your current 401k and an IRA before rolling over.

Fees and Taxes

IRA fees are different than those associated with a 401k. You may be charged annually or for every transaction performed, and although these fees might be less than a 401k, if you plan to make many transactions, you might end up saving less in the long run.

Most direct rollovers can be performed without paying taxes, but this isn’t always the case. Make sure you have everything in place to complete the rollover swiftly and correctly so you can avoid unnecessary fees or tax payments.

Rules and Regulations

A 401k and an IRA will have different rules and regulations, and it’s essential that you understand the rules for each before deciding which option is better for your situation.


If you plan to stay with the company that’s supporting your 401k plan, you may not be eligible for a rollover into an IRA.

Talk with Your Advisor

A financial advisor is an incredible asset when it comes to weighing your options. They can answer questions, talk about pros and cons, and let you know what they feel is the best option for you.

How Do I Transfer My 401k to a Roth IRA Without Paying Taxes?

The Importance of An Advisor

As straightforward as the process usually is, rolling over a 401k into an IRA is a big decision. A financial advisor can help you weigh all your options and often makes the process much smoother.

Choose the Best Investment Options for You

What you can invest in with an IRA has strict rules. A financial advisor can help to guide your decisions.

Understand Rules and Regulations

There are different rules and regulations for both 401ks and IRAs, and a financial advisor is well-versed in the finer details.

Minimize Taxes and Penalties

Making the right choices, following procedures, and making sure each step of a rollover is performed properly can help minimize taxes and fees. A good advisor can ensure that all protocol is followed.

Stay On Track for Future Plans

Staying on track with your retirement or investment plans can be surprisingly tricky. Financial advisors can help.

In Summary

Rolling a 401k over into a Roth IRA is a big step and requires heavy consideration. However, a rollover can help you gain control of your investments and consolidate your savings, and when performed correctly, you shouldn’t have to pay taxes. Talking with a financial advisor and working closely with your plan administrator can make the process simple.