Earn Rewards: Sign up now and earn a special reward after your first deposit. See offer details



Save, invest, retire

GET — On the App Store


Concerned about market volatility? We've got answers and guidance for you. See videos


The Benefits of Rolling Over Your 401(k) or 403(b) into an IRA

Rolling over an old employer-sponsored retirement plan into an IRA can be highly beneficial. Here are three reasons to consider rolling over a 401(k) or 403(b).

Articles by Andrew Westlin, CFP®
By Andrew Westlin Financial Planner, Betterment Published Jan. 02, 2018 | Updated Feb. 18, 2019
Published Jan. 02, 2018 | Updated Feb. 18, 2019
4 min read
  • If your old 401(k) or 403(b) has limited investing options, you can often access a more diversified, low cost portfolio by rolling over your account into an IRA.

  • Fund fees are important to pay attention to—in old employer plans and current ones. If the funds within your old 401(k) are high, you may find lower-cost funds in an IRA provider, such as Betterment.

  • As long as you roll over your employer-sponsored plan correctly, there should be no tax consequences of moving those funds into an IRA.

When you’ve switched jobs multiple times in your career, you may have participated in several employer-sponsored retirement plans, such as 401(k) and 403(b) plans. 401(k)s are generally provided by many for-profit employers, while 403(b) plans are most often used by the nonprofit sector.

What many people don’t know is that when you leave a job, it’s important to consider carefully what you do next with your employer-sponsored plan. While working, one of the best ways to save for retirement is to fund an employer-offered plan because they often have important tax advantages and higher contribution limits than individual retirement accounts. But after you leave a job, there are several important reasons to consider rolling over funds from your 401(k) or 403(b).

In this article, we’ll run through some of those reasons.

1. Accessing more investment options

One of the main benefits of an IRA is that there are often more investment options than a 401(k) or 403(b) plan. If you contribute to your employer’s retirement plan, you might end up with only a few options chosen by the plan administrator. You might have to be heavily invested in company stock or you might have a limited number of high cost mutual funds to choose from. We don’t bring this up as a way of lambasting your administrator—they’re simply trying to pick the options they believe should be made available to all employees—but many people don’t realize just how limiting these options can be.

If you have an account with a previous employer, you may not have any worthwhile reasons to stay with the limited investment choices within the plan, and that’s one reason to consider rolling into an IRA. An IRA held at a brokerage or investment advisor, like Betterment, enables you to access a much broader universe of funds.

For some investors, having the ability to pick and choose any variety of funds is important to them. At Betterment, our investment advice for an IRA (and any account type) is based on research-backed portfolio construction that pursues a highest expected return for the risk you’re willing to take on, while maintaining global diversification and low costs.

2. Lowering Your Investment Fees

The fees with an IRA can sometimes be lower than what is charged by your plan administrator. In many 401(k) and 403(b) plans, the expense ratios (i.e. fees) on mutual funds and ETFs can be much higher than those available within IRAs. Also, depending on your plan, by keeping funds within your 401(k) plan after leaving your employer, you may be subject to management fees.

Moving to an IRA may involve taking on fees for investment advice and management or trading costs, but all-in, when you do the cost analysis, an IRA can often be less expensive than a 401(k) plan. When evaluating fees, do keep in mind, that if your current employer-sponsored plan is among the nation’s top plans, it could also be worth your while to hold your funds there.

3. Managing Your Portfolio in One Place

For many investors, part of the value of rolling over to an IRA comes from the peace of mind of having all of their past retirement contributions (and other investments) in one place, rather than spread out across multiple old employer-sponsored plans and investment providers. When you understand the full picture of your retirement savings, you can often make better estimates of what your future retirement budget could look like.

Furthermore, depending on your situation, if you move your retirement assets to one provider, you can also improve the tax-efficiency of your taxable investments using asset location. You can learn more about how Betterment’s Tax Coordination of IRAs and taxable accounts helps increase potential after-tax returns here.

Get your retirement savings on track.

Roll over correctly, and you probably won’t need to worry about taxes.

Even with the above benefits of rolling over, many people hesitate on the fear of causing themselves extra taxes. The good news is that when rolling over a 401(k)/403(b) or any other employer sponsored plan, we use the direct rollover method to prevent any withholding or negative tax consequences.

There are two important things to remember in regards to taxes when rolling over:

  • Be sure to designate a withdrawal from your current provider as a rollover.
  • A rollover from a traditional 401(k) or 403(b) should enter a traditional IRA. A rollover from a Roth 401(k) or 403(b), should end up in a Roth IRA.

If you withdraw from a traditional 401(k) or 403(b) as a non-rollover before age 59 ½, you will face a 10% penalty for an early withdrawal. If you rollover from a traditional plan into a Roth IRA, you will have to pay income taxes on the money. Both of these situations are unnecessary for most investors, except in certain circumstances.

The key is that when deciding whether to rollover a retirement account, you should carefully consider your personal situation and preferences. In this article, we’ve provided three general reasons to consider rolling over to an IRA, but as an individual investor, your situation is unique. This article is not an individualized recommendation that you take any particular action—just useful information for you to think about.

As suggested above, there are a variety of factors to consider when evaluating the choice to make a rollover. In addition to the points above, you might want to consider:

  • The investment options you have access to
  • The current and future fees and expenses you face
  • The investment services you need (and could gain or lose)
  • Any penalties you could face when withdrawing your money
  • Protections from creditors and legal judgments
  • Required minimum distributions associated with certain accounts
  • The treatment of employer stock within your employer plan

The world of retirement planning is complicated, no doubt about that. So, before deciding to roll over an employer-sponsored plan, you should research the details of your current account and consult tax professionals and other advisors with any questions about your specific personal situation.

Recommended Content

View All Resources

Understanding Inherited IRAs

Learn what inherited IRAs are, how to roll over your inherited IRA, and other considerations you may want to be aware of.

Congress Just Passed the SECURE Act—Here’s What You Should Know

The government is taking steps to make your retirement more secure. Find out how the new changes might affect you.

What it Means to Be a 401(k) Plan Fiduciary and How You Can Mitigate Your Risk

Fiduciary responsibilities can seem daunting and time-consuming. Learn the ins and outs of your responsibilities and which ones you can delegate.

Explore your first goal

Cash Reserve

Our high-yield account built to help you earn more on every dollar you save.

Safety Net

This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.


Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.

General Investing

If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.

See details and disclosure for Betterment's articles and FAQs.