What Happens to Your 401(k) When You Retire? The Complete 2026 Rollover Guide

You spent decades building your 401(k). Every paycheck, a little more went in. Maybe your employer matched part of it. Maybe you changed jobs a few times and now have two or three old plans scattered around. Then retirement shows up, and a question you may never have thought much about suddenly matters a great deal: what happens to your 401(k) when you retire?

The short answer is that nothing happens automatically. Your money does not disappear, and in most cases it does not have to move at all. But retirement opens up a set of choices, and each one comes with its own rules, deadlines and tax consequences. Some of those rules are simple. Others, like the 60-day rollover rule and the 20% mandatory withholding, catch thousands of retirees off guard every year.

This guide explains how it all works in plain English. You will learn the common paths people take with a 401(k) at retirement, how a rollover actually works step by step, how 401(k)s and IRAs differ once you stop working, how withdrawals are taxed, and the special rules for company stock, Roth money, plan loans and public employees. Because we work with retirees across Orlando and Central Florida every day, we also cover the Florida-specific details, such as state taxes, creditor protection and the Florida Retirement System, that national articles usually skip.

This article is educational. It explains how the rules work, not what any one person should do. The right approach depends on your full situation, which is why every section ends with the questions worth asking rather than a single answer.

Quick answer: When you retire, your 401(k) usually stays with your former employer’s plan until you decide what to do with it. Common paths include leaving it in the plan, rolling it to an IRA, rolling it to a new employer’s plan, converting some or all of it to a Roth, taking withdrawals over time, or cashing it out. A direct rollover (moved straight from one account to another) is not taxed. A check made out to you is subject to 20% federal withholding and a 60-day deadline, and missing that deadline can turn the money into taxable income.

What Happens to Your 401(k) When You Retire or Leave Your Job?

When you stop working for an employer, your 401(k) stays exactly where it is, invested the same way it was the day before. Your contributions stop, and any employer match stops with them. Beyond that, the account keeps going until you act.

Three things do change when you separate from service:

1. You gain access. While you are working, most plans limit withdrawals to loans, hardship distributions or in-service withdrawals after age 59½. Once you leave, the plan generally allows you to take distributions or move the money.
2. Some protections and rules shift. For example, the Rule of 55 (explained below) depends on the age at which you leave your job, and the “still working” exception to required minimum distributions ends.
3. Small balances may be moved for you. If your vested balance is under $7,000, your former employer’s plan may be allowed to move it out without your consent. Balances between $1,000 and $7,000 are usually rolled into an IRA opened in your name. Balances under $1,000 may simply be paid out as a check, minus withholding.

Vesting: how much of the money is actually yours

Your own contributions are always 100% yours. Employer contributions, such as matching and profit-sharing dollars, may follow a vesting schedule. If you leave before you are fully vested, the unvested portion goes back to the plan. Most people retiring after a long career are fully vested, but anyone leaving after only a few years with a company may want to check their statement for the “vested balance” before making plans.

What if you have several old 401(k)s?

It is common to retire with two, three or even more old workplace plans. Each one is its own account with its own rules, its own beneficiary designation and, later on, its own required minimum distribution. There is no rule that forces you to combine them, but many people find that tracking several accounts becomes harder over time. If you have lost track of an old plan, the U.S. Department of Labor maintains a Retirement Savings Lost and Found database to help people locate forgotten accounts.

Your 401(k) Options at Retirement: The Common Paths

There is no single “retirement option” box to check. Instead, people usually choose one path or combine several. Here are the most common ones, described side by side. These are only some of the possibilities, and which mix fits depends entirely on each person’s situation.

Path 1: Leave the money in your former employer’s plan

Many plans allow retirees to keep their money right where it is. Your account stays invested in the plan’s menu of options, and you can usually take withdrawals when you need them, subject to the plan’s rules.

How it works in practice:

• Your investment choices stay limited to the plan’s menu.
• Plan fees, which are disclosed on your annual fee disclosure, continue to apply.
• Some plans allow partial withdrawals whenever you like. Others only allow a full lump sum or a fixed installment schedule. This is one of the most important details to check in your plan’s Summary Plan Description.
• If you left your job in or after the year you turned 55, withdrawals from that employer’s plan may avoid the 10% early withdrawal penalty under the Rule of 55.
• 401(k) plans covered by ERISA, the federal law that governs most private-employer plans, carry strong federal creditor protection.

Path 2: Roll the money into an IRA

A rollover IRA is an individual retirement account that you open at a bank, brokerage or other financial institution to receive money from a workplace plan. Rolling a traditional 401(k) into a traditional IRA is not a taxable event when it is done correctly.

How it works in practice:

• IRAs generally offer a much wider range of investment choices than a 401(k) menu.
• Fees vary widely depending on where the IRA is held and how it is invested.
• You control the withdrawal schedule, within IRS rules.
• The Rule of 55 does not apply to IRAs. Withdrawals before 59½ generally face the 10% penalty unless another exception applies.
• Several old 401(k)s can be combined into one IRA, which can simplify paperwork and required minimum distributions.

Path 3: Roll the money into a new employer’s plan

If you are not fully retiring and take a job with a company that offers a retirement plan, that plan may accept rollovers from your old 401(k). Not all plans do, so the new plan’s rules decide whether this path is available.

How it works in practice:

• Your money stays in a workplace plan, with that plan’s investment menu and fees.
• If you are still working there past your required minimum distribution age and do not own 5% or more of the company, you may be able to delay RMDs from that plan until you retire.
• Federal creditor protection under ERISA continues.

Path 4: Convert some or all of it to a Roth

Pre-tax 401(k) money can be rolled into a Roth IRA. This is called a Roth conversion. The amount converted is added to your taxable income for that year, but qualified withdrawals from the Roth later are tax-free, and Roth IRAs have no required minimum distributions during the owner’s lifetime.

Some people convert all at once. Others convert a portion each year, often in the years between retiring and starting Social Security or required minimum distributions, when their income may be lower. Roth conversions are taxable in the year of conversion and may not be appropriate for everyone. You can learn more in our Roth conversion guide for Florida retirees.

Path 5: Take withdrawals over time

Some retirees leave the money in the plan or an IRA and draw from it as needed. Withdrawals from pre-tax accounts are taxed as ordinary income in the year you take them. How much to withdraw, and in what order to draw from different accounts, is one of the biggest questions in retirement income planning, and we explain the common approaches later in this guide.

Path 6: Cash out the whole account

You can take your entire balance as a single payment. This is simple, but it is usually the most expensive path from a tax standpoint. The full pre-tax amount is added to your income for the year, the plan withholds 20% for federal taxes, and if you are under 59½ a 10% penalty may also apply unless an exception fits. A large lump sum can also push you into a higher tax bracket, increase the taxable portion of your Social Security and raise your Medicare premiums two years later.

Mixing paths

These options are not all-or-nothing. A retiree might leave part of the money in the plan to keep Rule of 55 access, roll another part into an IRA, and convert a slice to a Roth over several years. Splitting accounts like this is common, and each piece follows its own rules.

This table is a general summary for educational purposes. Rules have exceptions, and plan terms vary.

How a 401(k) Rollover Works, Step by Step

A rollover sounds technical, but the process is usually straightforward. What matters most is how the money moves.

Direct rollover vs. indirect rollover

There are two ways to move money out of a 401(k):

A direct rollover sends the money straight from your 401(k) to the receiving account. Sometimes this happens electronically. Other times the plan mails a check made payable to the new account’s custodian “for the benefit of” you (often written “FBO” followed by your name). Because the money never passes through your hands, no taxes are withheld and there is no 60-day deadline to worry about.

An indirect rollover happens when the plan pays the money to you personally. You then have 60 days to deposit it into an IRA or another eligible plan. This is where most rollover mistakes happen, because of two rules that work together: the 20% mandatory withholding and the 60-day deadline.

The 20% withholding trap

When a 401(k) pays an eligible rollover distribution directly to you, federal law requires the plan to withhold 20% for federal income taxes. You cannot opt out of it.

Here is why that matters. Imagine a hypothetical retiree with a $200,000 401(k) who asks for a check made out to herself, planning to deposit it in an IRA.

• The plan withholds 20%, or $40,000, and sends it to the IRS.
• She receives a check for $160,000.
• To roll over the full $200,000 and avoid taxes, she has 60 days to deposit $200,000 into the IRA. That means coming up with the missing $40,000 from other savings.
• If she deposits only the $160,000 she received, the $40,000 that was withheld is treated as a taxable distribution. If she is under 59½ and no exception applies, it may also face a 10% penalty.
• The $40,000 that was withheld is not lost. It is credited toward her taxes when she files her return, and she may get some or all of it back as a refund. But that can be many months later.

This example is hypothetical and for illustration only.

A direct rollover avoids this problem entirely, which is why most plan administrators and IRA custodians describe it as the standard method.

The 60-day rule

With an indirect rollover, you have 60 calendar days from the day you receive the money to complete the deposit. Any amount not deposited within 60 days is generally treated as a taxable distribution.

The IRS can waive the 60-day deadline in some situations, such as an error by a financial institution, a serious illness, a death in the family, a disaster or a lost check that was never cashed. In certain cases a taxpayer can self-certify that they qualify for a waiver, and in others a private letter ruling is required. Waivers are the exception, not the rule.

The one-rollover-per-year rule

You may have heard that you can only do one rollover per year. That rule is narrower than it sounds. It applies to indirect IRA-to-IRA rollovers: you can only do one of those in any 12-month period, no matter how many IRAs you own.

The rule does not apply to:

• Direct trustee-to-trustee transfers between IRAs
• Rollovers from a 401(k) or other workplace plan to an IRA
• Rollovers from an IRA into a workplace plan
• Roth conversions

What the rollover process usually looks like

While every plan and custodian has its own forms, the steps usually follow the same pattern:

1. Review your options and your plan’s rules. Request your plan’s Summary Plan Description and most recent fee disclosure.
2. Open the receiving account (if rolling to an IRA) so that you have an account number and the custodian’s rollover instructions.
3. Contact your 401(k) plan administrator by phone, online or by form, and request a direct rollover. You will usually need the receiving institution’s name, mailing address and your new account number.
4. Sort the different types of money. If your 401(k) holds pre-tax, Roth and after-tax dollars, each type needs to go to the right kind of account (more on this below).
5. Watch for the check or transfer. If a check is mailed to you made payable to the new custodian, forward it promptly.
6. Confirm the deposit shows up in the new account coded as a rollover, not a regular contribution.
7. Keep the paperwork. In January you will receive Form 1099-R from the plan. A direct rollover is usually reported with distribution code G. The receiving IRA reports the deposit on Form 5498. You report the rollover on your tax return even though it is not taxable.

How long does it take? Many rollovers finish in a few weeks, though it varies by plan, the time of year and whether paper checks are involved.

Is there a limit on how much you can roll over?

No. Unlike annual IRA contribution limits, there is no dollar cap on how much you can roll over from a 401(k) into an IRA.

401(k) vs. IRA After You Retire: How They Differ

Once you stop working, the main choice for many retirees comes down to keeping money in a workplace plan or moving it to an IRA. Neither is automatically better. They are built differently, and the differences matter in specific situations.

General comparison for educational purposes. Individual plan rules vary.

The Rule of 55, explained

Normally, withdrawals from retirement accounts before age 59½ face a 10% early withdrawal penalty on top of regular income tax. The Rule of 55 is a major exception for workplace plans.

If you leave your job (by retiring, quitting, being laid off or being fired) in or after the calendar year you turn 55, withdrawals from that employer’s 401(k) are not subject to the 10% penalty. For qualified public safety employees, such as police officers and firefighters in governmental plans, the age is 50, and some can qualify with 25 years of service.

A few details are easy to miss:

• It applies only to the plan of the employer you just left, not to older 401(k)s from previous jobs (unless that money was rolled into the current plan before you left).
• It does not apply to IRAs. If you roll your 401(k) into an IRA, you give up Rule of 55 access for that money.
• Regular income tax still applies to pre-tax withdrawals.
• Your plan must allow the withdrawals you want to take.

For people retiring in their mid to late 50s, the Rule of 55 can be one of the most important details in the entire decision. Our guide to retiring early in Florida explains more about the years before 59½.

Other exceptions to the 10% early withdrawal penalty

The 10% penalty also does not apply in a number of other situations, including:

• Death of the account owner (for beneficiaries)
• Total and permanent disability
• A series of substantially equal periodic payments, sometimes called a 72(t) plan
• Unreimbursed medical expenses above 7.5% of adjusted gross income
• Payments to a former spouse under a qualified domestic relations order (from workplace plans)
• Up to $5,000 per child for a qualified birth or adoption
• One emergency personal expense distribution of up to $1,000 per year
• Certain distributions related to terminal illness, federally declared disasters or domestic abuse

Each exception has its own rules, and some apply only to workplace plans or only to IRAs.

Creditor protection, and why Florida is different

Federal law gives 401(k)s covered by ERISA broad protection from creditors. IRAs are protected in federal bankruptcy up to an inflation-adjusted limit (currently more than $1.7 million), and money rolled over from a workplace plan generally keeps its full protection even inside an IRA.

Outside of bankruptcy, protection for IRAs depends on state law, and this is one area where Florida stands out. Florida law generally exempts IRAs and qualified retirement plans from the claims of creditors, which makes Florida one of the stronger states for retirement account protection. Protections have limits and exceptions, so anyone with specific concerns about liability or lawsuits may want to talk with a Florida attorney.

Different Kinds of Money Inside Your 401(k)

Many 401(k) statements show a single balance, but that balance may be made up of several types of money that follow different rules when you roll them over.

Pre-tax (traditional) money

This is money you contributed before taxes, plus your employer’s contributions and the growth on both. It can be rolled into a traditional IRA or another workplace plan without tax. If it is rolled into a Roth IRA, it becomes a taxable Roth conversion.

Roth 401(k) money

Roth 401(k) contributions were made with after-tax dollars. They can be rolled into a Roth IRA or another plan’s Roth account without tax. Since 2024, Roth 401(k)s no longer have required minimum distributions during the owner’s lifetime, which matches the Roth IRA rules.

The detail many people miss is the five-year rule. For Roth IRA earnings to come out tax-free, you generally need to be 59½ and your Roth IRA must have been open for at least five years. If you roll Roth 401(k) money into a brand-new Roth IRA, the five-year clock is based on that Roth IRA, not on how long you had the Roth 401(k). Someone who opened a Roth IRA years ago, even with a small amount, may already have that clock running.

After-tax (non-Roth) contributions

Some plans allow after-tax contributions that are not Roth. When these are rolled out, IRS rules generally allow the after-tax contributions themselves to go to a Roth IRA tax-free, while the earnings on them go to a traditional IRA (or are converted and taxed). This is the same mechanism behind the strategy explained in our mega backdoor Roth guide.

Company stock

If your 401(k) holds shares of your employer’s stock, there may be a special tax option called net unrealized appreciation, explained in its own section below. It is important to understand this option before rolling company stock into an IRA, because a rollover can permanently remove it.

How 401(k) Withdrawals Are Taxed in Retirement

A rollover itself is not taxable when it is done correctly. Withdrawals are a different story. Here is a summary of how taxes work, with links to our in-depth guides on each topic.

Neither the firm nor its agents or representatives may give tax or legal advice. Please consult a qualified tax professional about your specific situation.

Withdrawals are taxed as ordinary income

Money withdrawn from a traditional 401(k) or traditional IRA is taxed as ordinary income, at the same federal rates as wages. It does not receive the lower long-term capital gains rates, even if the investments inside the account grew for decades. Our article on managing 401(k) taxes in 2026 walks through the brackets and the 2026 rules in detail.

Withholding on withdrawals

Lump-sum payments from a 401(k) that are eligible for rollover have mandatory 20% federal withholding. IRA withdrawals typically default to 10% federal withholding, which you can change or decline on the withdrawal form. Withholding is not the same as your final tax bill. It is a prepayment toward it.

Ripple effects: Social Security and Medicare

Larger withdrawals do more than raise your income tax. They can:

• Increase how much of your Social Security is taxable. Up to 85% of benefits can become taxable once your “provisional income” passes certain thresholds.
• Raise your Medicare premiums. Medicare’s income-related monthly adjustment amount (IRMAA) uses your tax return from two years earlier. A large withdrawal or conversion at 63 can raise Part B and Part D premiums at 65. Learn more in our IRMAA guide.
• Affect deductions and credits that phase out at higher incomes, including the temporary senior deduction explained in our article on the $6,000 senior bonus tax deduction.

This chain reaction is why many retirees describe large pre-tax balances as a “tax bomb.” We explain it in The Silent Tax Bomb Hidden Inside Most 401(k)s.

Required minimum distributions (RMDs)

The IRS does not let pre-tax money grow untaxed forever. Required minimum distributions start at:

• Age 73 if you were born between 1951 and 1959
• Age 75 if you were born in 1960 or later

Key RMD rules that connect to the rollover decision:

• RMDs cannot be rolled over. If you are already RMD age when you roll money out of a 401(k), the year’s RMD generally has to be taken first.
• Each 401(k) is separate. If you have three old 401(k)s, each one must take its own RMD. IRAs can be added together, with the total taken from one or more of them.
• The first RMD can be delayed until April 1 of the following year, but that means taking two RMDs in one year.
• The “still working” exception lets many employees delay RMDs from their current employer’s plan until they retire, unless they own 5% or more of the company.

Our complete RMD guide covers calculations, deadlines and common mistakes.

Florida and state taxes on 401(k) withdrawals

Florida has no state income tax, so Florida residents pay no state tax on 401(k) withdrawals, IRA withdrawals, Roth conversions or pensions. Federal taxes still apply.

This matters a great deal for people moving to Florida from states that do tax retirement income. In general, a state taxes income based on where you live when you receive it. A federal law passed in 1996 also prohibits states from taxing the retirement plan income of people who no longer live there. That is why many retirees moving to Orlando, Tampa or the Gulf Coast pay attention to when they establish Florida residency relative to large withdrawals or Roth conversions. Residency has specific legal requirements, which we cover in our guide to establishing Florida domicile.

Special Situations Worth Understanding

Net unrealized appreciation (NUA) and company stock

If your 401(k) holds your employer’s stock, the tax code offers a special option that is often overlooked. Instead of rolling the stock into an IRA, you can take the shares out of the plan as actual shares (called an “in-kind” distribution) as part of a lump-sum distribution.

Here is how the tax treatment works:

• The cost basis of the shares (what the plan originally paid for them) is taxed as ordinary income in the year of the distribution.
• The net unrealized appreciation, meaning the growth above that cost basis, is not taxed until you sell the shares. When you do, it is taxed at long-term capital gains rates, which are often lower than ordinary income rates.
• Any growth after the distribution is taxed as short-term or long-term capital gain depending on how long you hold the shares after they leave the plan.
• If you are under 55 at separation (or under 59½ for some triggering events), the 10% penalty may apply to the taxable cost basis portion.

The rules are strict. NUA treatment generally requires a lump-sum distribution of the entire balance from all of that employer’s plans of the same type within a single tax year, following a triggering event such as separation from service, reaching 59½, disability or death. The rest of the account can be rolled over as part of the same lump sum.

Most importantly, if company stock is rolled into an IRA, the NUA option is gone for good. Every future IRA withdrawal is taxed as ordinary income. This is why people with significant employer stock often review NUA before signing rollover paperwork.

NUA is not right for everyone. Its value depends on the size of the gain, your tax brackets now and later, and how concentrated your holdings are. It is a decision that usually benefits from a tax professional’s input.

Outstanding 401(k) loans

If you have a loan from your 401(k) when you leave your job, many plans require the balance to be repaid or the unpaid amount is “offset,” meaning it is subtracted from your account and treated as a distribution. An offset is taxable and may face the 10% penalty if you are under 59½ and no exception applies.

There is some relief. When a loan is offset because you left your job or the plan ended, you generally have until your tax return due date, including extensions, to deposit an equal amount into an IRA or another plan and treat it as a rollover. That can give you considerably more time than the usual 60 days.

Beneficiaries and the 10-year rule

Retirement accounts pass according to their beneficiary designation forms, not your will. A rollover is a natural time to review beneficiaries, because a new IRA starts with a blank form.

Under the SECURE Act, most non-spouse beneficiaries who inherit a 401(k) or IRA must empty the account within 10 years of the owner’s death, and some must also take annual distributions during those 10 years. Spouses have more options, including treating an inherited account as their own. Certain beneficiaries, such as minor children of the owner, disabled or chronically ill individuals and people not more than 10 years younger than the owner, have special rules. Surviving spouses face their own tax changes, which we explain in our article on the widow’s tax trap.

Pensions with a lump-sum option

Some workers retire with both a 401(k) and a traditional pension. Many pensions offer a choice between monthly payments for life and a lump sum that can be rolled into an IRA. That decision follows its own logic, which we explore in Pension Lump Sum vs. Monthly Payments.

403(b) and 457(b) plans

Teachers, hospital workers, nonprofit employees and government workers often have 403(b) or 457(b) plans instead of, or alongside, a 401(k). Rollovers generally work the same way. One difference stands out: withdrawals from a governmental 457(b) plan after you leave your job are not subject to the 10% early withdrawal penalty at any age. If that money is rolled into an IRA, IRA penalty rules apply instead. Our guide to IRA vs. 401(k) vs. 403(b) explains how these accounts compare during your working years.

Rolling over while you are still working

Some 401(k) plans allow “in-service” distributions or rollovers once you reach 59½, even while you are still employed. Not every plan offers this, and the plan document sets the rules. In-service rollovers follow the same direct and indirect rollover rules described above.

Retiring before 65

People who retire before Medicare eligibility often use retirement accounts to cover living costs and health insurance until 65. How money is withdrawn during those years can affect Affordable Care Act premium tax credits, which are based on income. We cover this in Retiring Before 65: Your Bridge to Medicare.

Common Ways Retirees Turn a 401(k) Into Income

Whether your money stays in a 401(k) or moves to an IRA, the next question is how to turn a lump of savings into income that lasts. These are some of the general approaches retirees use. They are not recommendations, and many people combine more than one.

• Systematic withdrawals. Taking a set amount or percentage each month or year. Simple to understand, but the income can change with markets, and withdrawing more than the account earns over time can shrink the balance.
• The bucket approach. Dividing savings into “buckets” based on when the money will be needed, such as cash for the next year or two, more conservative holdings for the middle years and growth-oriented holdings for later. The goal is to avoid selling long-term holdings during a downturn.
• Guaranteed income options. Some retirees use part of their savings to create income that does not depend on markets, through sources like a pension, delaying Social Security, or annuities. Annuities are insurance contracts. Their guarantees depend on the claims-paying ability of the issuing insurance company, and they can carry fees, surrender charges and limits on access to your money. Our Florida retirement annuities guide and our comparison of annuities vs. bond ladders explain the trade-offs.
• Interest and dividend income. Living on what the portfolio produces while leaving principal alone. This can require a larger balance, and the risks are explained in our article on living off returns in retirement.
• Combinations. Many retirement income plans blend several of these, often coordinated with Social Security timing and tax brackets.

One risk deserves special attention: sequence of returns risk, the danger of a major market decline right before or early in retirement, when withdrawals have just begun. We explain it in What Happens to My 401(k) If the Market Crashes Right Before I Retire? For a step-by-step look at building a retirement paycheck, see How to Turn Your Retirement Savings Into Monthly Income.

Free resource: Want to see how your savings could translate into monthly income? Download our free Retirement Income Guide, or take the 60-second Retirement Readiness Quiz to see where you stand today.

Retiring From an Orlando or Central Florida Employer

Central Florida has one of the most varied job markets in the country, and the retirement plans that come with those jobs vary just as much. Here are some situations we see often among retirees in Orlando, Winter Park, Lake Nona, Lake Mary, Kissimmee, Clermont, Sanford and the surrounding communities.

Large private employers

Many people in the Orlando area retire from large employers in theme parks and hospitality, healthcare, aerospace and defense, simulation and technology, and retail. Long careers at companies like these often mean a larger 401(k) balance, sometimes alongside a pension, company stock, deferred compensation or retiree health benefits. Each of those pieces has its own rules and deadlines, and the paperwork from large employers can arrive in thick packets with short decision windows. It can help to request your plan’s Summary Plan Description and benefit statements several months before your planned retirement date.

Hospital and healthcare systems

Central Florida’s large health systems employ tens of thousands of nurses, physicians, therapists and support staff. Healthcare employers frequently offer 403(b) plans, and some also offer 457(b) or 401(a) plans. People with several types of accounts from the same employer may find that each plan has different withdrawal and rollover rules.

Teachers, county workers and the Florida Retirement System

Public school teachers, state workers, and many city and county employees in Orange, Seminole, Osceola, Lake and Volusia counties participate in the Florida Retirement System (FRS). FRS members may be in the Pension Plan, the Investment Plan or, for some, the Deferred Retirement Option Program (DROP). Many public employees also have voluntary 457(b) deferred compensation accounts. Each comes with its own rules for payouts and rollovers, and the decisions made at retirement can be difficult or impossible to reverse. FRS publishes guidance for members, and its rules are worth reviewing before any money moves.

Laid off or offered early retirement

Downsizing and early retirement packages are common across many industries. Leaving a job unexpectedly in your 50s or early 60s raises its own set of questions about severance, health insurance and whether to tap retirement savings early. Our guide for Floridians laid off near retirement walks through the first steps.

Moving to Florida with a 401(k) from another state

Thousands of people move to Central Florida every year from New York, New Jersey, Illinois, Ohio, Pennsylvania and other states, many with 401(k)s from employers back home. Your 401(k) does not need to move just because you do. The plan stays with your former employer no matter where you live. What changes is how your withdrawals are taxed at the state level, and as explained above, Florida does not tax them. Our guide to retiring in Florida covers residency, homestead and the other steps involved in becoming a Floridian.

Common 401(k) Rollover Mistakes

These are some of the most frequent and costly mistakes people make with their retirement plans at retirement:

1. Taking a check made out to yourself instead of requesting a direct rollover, then getting caught by the 20% withholding.
2. Missing the 60-day deadline on an indirect rollover.
3. Rolling company stock into an IRA without reviewing NUA, which permanently eliminates the option.
4. Losing Rule of 55 access by rolling a 401(k) into an IRA when penalty-free withdrawals before 59½ were part of the plan.
5. Rolling over the year’s RMD, which is not allowed and can create an excess IRA contribution.
6. Mixing Roth and pre-tax money in the wrong type of account, or overlooking the Roth five-year rule.
7. Forgetting about an outstanding 401(k) loan and being surprised by a taxable offset.
8. Leaving beneficiary forms blank or outdated on a new IRA.
9. Cashing out a large balance in one year without understanding the effect on tax brackets, Social Security taxation and Medicare premiums.
10. Doing more than one indirect IRA-to-IRA rollover within 12 months.
11. Making the decision in isolation, without looking at how it fits with Social Security, taxes, health insurance and the rest of a retirement income plan. Our article on why retirees run out of money explains how small decisions add up.

401(k) Rollover Terms to Know

401(k): A workplace retirement plan that lets employees save from their paychecks, often with an employer match.

Rollover: Moving money from one retirement account to another, such as from a 401(k) to an IRA, without it being taxed.

Direct rollover: A rollover where the money goes straight from one account to the other, with no tax withholding.

Indirect rollover: A rollover where the money is paid to you first. You have 60 days to deposit it into another retirement account.

Trustee-to-trustee transfer: A direct movement of money between two IRA custodians. It is not subject to the one-rollover-per-year rule.

Rollover IRA: An IRA opened to receive money from a workplace plan. It works like a traditional IRA.

Roth conversion: Moving pre-tax money into a Roth account. The converted amount is taxable in the year of conversion.

Vesting: The schedule that determines when employer contributions become fully yours.

Rule of 55: An exception that allows penalty-free withdrawals from your current employer’s plan if you leave the job in or after the year you turn 55.

Required minimum distribution (RMD): The minimum amount the IRS requires you to withdraw each year from pre-tax retirement accounts, starting at 73 or 75 depending on your birth year.

Net unrealized appreciation (NUA): The growth in value of employer stock held in a 401(k), which may be eligible for capital gains tax treatment if the stock is distributed in-kind.

Plan loan offset: A reduction of your account balance to pay off an unpaid 401(k) loan, treated as a distribution.

Summary Plan Description (SPD): The document that explains your plan’s rules, including withdrawal and rollover options.

Form 1099-R: The tax form reporting distributions from retirement plans, including rollovers.

Beneficiary designation: The form that names who inherits your account. It generally overrides your will.

Questions to Ask Before You Move a Dollar

There is no universal right answer to what someone should do with their 401(k) at retirement. But there are good questions, and answering them makes the decision much clearer. Here are some of the questions retirees often work through:

1. What does my plan allow after I leave? Partial withdrawals, installments, or only a lump sum?
2. What are the total fees in my plan today, and what would they be elsewhere?
3. Will I need money before 59½, and does the Rule of 55 apply to me?
4. Does my account hold pre-tax, Roth and after-tax money, and where should each type go?
5. Do I hold company stock, and have I looked at NUA before rolling it?
6. Do I have an outstanding 401(k) loan?
7. How will withdrawals affect my taxes, my Social Security and my Medicare premiums?
8. When do my RMDs start, and how many accounts will I be tracking by then?
9. Are my beneficiary designations current on every account?
10. How does this decision fit with my Social Security timing, health insurance and overall income plan?
11. Am I moving to Florida or another state, and how does timing affect state taxes?
12. Who will help me if a rule or deadline changes?

If several of these questions are hard to answer on your own, you are not alone. Most people only face these decisions once, and the rules are complex. You can also find quick answers to dozens of related questions in our list of 50 retirement planning questions Orlando retirees ask most.

Frequently Asked Questions About 401(k) Rollovers

Do I have to roll over my 401(k) when I retire?

No. If your balance is above $7,000, most plans allow you to leave the money where it is. Rolling over is one option, not a requirement. Balances under $7,000 may be moved out by the plan.

Do I pay taxes when I roll over a 401(k)?

A direct rollover from a traditional 401(k) to a traditional IRA, or from a Roth 401(k) to a Roth IRA, is not taxable. Rolling pre-tax money into a Roth IRA is a taxable Roth conversion. An indirect rollover is not taxed if the full amount, including the 20% that was withheld, is deposited within 60 days.

How long do I have to roll over my 401(k) after leaving my job?

There is no deadline to begin a rollover after leaving a job. You can roll it over months or years later, as long as the plan still holds your money. The 60-day deadline only applies once money has been paid out to you.

Can I roll my 401(k) into a Roth IRA?

Yes. Pre-tax money rolled into a Roth IRA is a Roth conversion and is taxable in the year of the conversion. Roth 401(k) money can be rolled into a Roth IRA without tax. Roth conversions may not be appropriate for everyone.

Can I roll over a 401(k) while I am still working?

Some plans allow in-service rollovers, usually starting at age 59½. Others do not. Your plan’s rules decide.

What happens to my 401(k) if I die?

Your account goes to the beneficiaries named on the plan’s beneficiary form. Spouses generally have more options than other beneficiaries. Most non-spouse beneficiaries must empty an inherited account within 10 years.

Can I keep contributing to my 401(k) after I retire?

No. Contributions to a 401(k) come from payroll, so they stop when you leave the employer. If you have earned income from a new job or self-employment, you may be able to contribute to an IRA or a new employer’s plan.

Is my 401(k) protected from creditors in Florida?

401(k)s covered by ERISA receive broad federal protection. Florida law also generally protects IRAs and qualified retirement plans from creditors, though exceptions exist. A Florida attorney can explain how the rules apply to a specific situation.

Does Florida tax 401(k) withdrawals?

No. Florida has no state income tax, so 401(k) withdrawals, IRA withdrawals and Roth conversions are not taxed by the state. Federal income tax still applies.

Should I talk to someone before rolling over my 401(k)?

Many people find it helpful to review their options with a financial professional and a tax professional before moving money, especially when company stock, Roth money, a pension, early retirement or a large balance is involved. The decision is usually easier to make correctly the first time than to fix afterward.

The Bottom Line

Your 401(k) is likely one of the largest assets you will ever own, and retirement is when its rules matter most. The good news is that the basics are learnable: nothing happens automatically, a direct rollover avoids the 20% withholding trap, the 60-day rule only applies when money passes through your hands, and Florida residents keep the advantage of no state income tax on withdrawals.

The harder part is fitting those rules into your whole retirement picture, with your taxes, Social Security, Medicare, income needs and family all in the mix. That is where a clear plan makes the biggest difference.

Have Questions About Your Own 401(k)?

If you are in Orlando or anywhere in Central Florida, or anywhere in the country by video, we are happy to walk through how these rules apply to your situation. There is no cost and no obligation, and we will look at all of your options, including leaving your money right where it is.

Book a Free Consultation or call (407) 974-7100.

Prefer to start on your own? Download the free Retirement Income Guide, grab our free guide to the 7 Retirement Tax Mistakes, or take the 60-second Retirement Readiness Quiz.

This article is for educational purposes only and is not individualized investment, tax or legal advice. It does not recommend any particular investment, product or account. Neither the firm nor its agents or representatives may give tax or legal advice. All examples are hypothetical. Figures and rules are current as of 2026 and may change.