How Much Money Can I Roll Over From My 401(k) to an IRA Rollover?

There's a limit to how much money you can put in your individual retirement account each year. Unless it's a Roth account, your contributions are tax-exempt until you withdraw the money. But the Internal Revenue Service (IRS) limits the size of your contributions; the higher your income and the more retirement accounts you have, the greater the limit. If you're transferring money from your employer's 401k plan, however, there's no restriction on how much you can roll over into your IRA.

Benefits

• Rolling over your 401k has several advantages, "Smart Money" magazine states. With 401k plans you have to pick from a menu of several investment plans; with your own IRA, you can structure your investments any way you want, as long as the IRS accepts it. The law specifically forbids IRA investments in collectibles, for instance.

Time Frame

• You can't transfer money from your 401k to your IRA at will, the Research 401k website states. It can happen only after you've left your job or if you've reached 59 1/2 -- the age at which you can withdraw 401k money without a tax penalty. Whether you were fired or quit, once you're out the door you have the option to roll over your account into an IRA.

Process

• To roll the money over, the Gen X Finance website states, you'll need to obtain the correct forms from the 401k administrator, and then from whatever company handles your IRA. It's best if you have the money delivered directly from one account trustee to the other; if you accept the money yourself, the IRS requires the 401k trustee to withhold 20 percent of the money in case you don't complete the rollover and it becomes taxable.

Considerations

• If you start a new job after rolling over your old 401k, there's no reason not to open a 401k with your new employer, "Smart Money" states, rather than putting all your retirement investing into the IRA. Even though the 401k has more limited investment choices, the matching funds many companies put into employee accounts make up for that.

Warning

• Even though rollovers are tax free, you still have to tell the IRS that you made a withdrawal from your 401k. When you file your taxes for the year, include a 1099-R, where you list the amount of money you withdrew and the amount of money -- zero -- that you're paying taxes on.