I plan to join a new company that doesn't currently offer a 401k and I have funds in my old employer's 401k. I was thinking I would move the funds to something like Betterment who would do a 401k to Traditional IRA conversion.

My question is, once it is there, if I have the opportunity to move it into a 401k in the future, am I allowed? Will I get penalized? I don't want to get it locked into the Traditional IRA, but I also don't want my funds to sit in the old 401k. Is there an alternative?

2 Answers 2


You can rollover money from a 401(k) to Traditional IRA and back to a 401(k).

There are likely account closure fees associated with this, so it's not completely free.

As long as you're rolling from one tax deferred account to another there are no penalties. The IRS has a handy chart showing what accounts can roll where. Note, starting next year, you can only do one IRA rollover per year.

The IRS has additional general information on retirement account rollovers.

One additional comment - on the concept of your money being "locked" into an IRA. Generally you have far more options with an IRA than a 401(k). If you go with a large, low cost provider like Vanguard you're likely to be much better off than in a small company 401(k) that only offers costly funds that are likely selected primarily to benefit the administrator of the plan. Choose your IRA provider and the investments with them wisely, and leave that money there for a very long time.

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    There are no limits on direct rollovers. You can make as many custodian to custodian transfers as you'd like with no consequence. The issue is with taking possession of the funds. This is a bad idea for a 401(k) anyway as a 20% mandatory withholding applies even if you intend to deposit elsewhere. Commented May 22, 2014 at 12:02

Once you roll the money from the 401K into a rollover IRA don't mix it with new funds. The money from the 401K will be treated differently depending on if the funds are pre-tax, post-tax, Roth, or matching. (Yes, Post-tax and Roth are not the same thing).

In the future an employer may allow you to roll IRA or 401K money into their program. They don't have to allow it, and they can put restrictions on the types of money they will accept.

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    You cannot roll over Roth 401k into Traditional IRA, nothing to mix there. Pre-tax 401k is the same as nondeductible IRA - establishes basis.
    – littleadv
    Commented May 22, 2014 at 4:53
  • As @littleadv suggests, as long as like status money stays segregated, no issue, it's either going to a traditional IRA or Roth. Commented May 22, 2014 at 12:04

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