401(k) Rollover
The easiest way to borrow from your 401(k) without owing any taxes is to roll over the funds into a new retirement account. You may do this when, for instance, you leave a job and are moving funds from your former employer's 401(k) plan into one sponsored by your new employer.
If you withdraw the assets from your former employer‑sponsored retirement plan, the check is made payable to you, and taxes are withheld, you may still be able to complete a 60-day rollover. Within 60 days of receiving the distribution check, you must deposit the money into a Rollover IRA to avoid current income taxes.
Roll over your 401(k) to a Roth IRA
If you're transitioning to a new job or heading into retirement, rolling over your 401(k) to a Roth IRA can help you continue to save for retirement while letting any earnings grow tax-free. You can roll Roth 401(k) contributions and earnings directly into a Roth IRA tax-free.
One of the easiest ways to lower the amount of taxes you have to pay on 401(k) withdrawals is to convert to a Roth IRA or Roth 401(k). Withdrawals from Roth accounts are not taxed.
It's possible to roll 401(k) money into a CD without paying tax penalties but there are some guidelines for doing so. First, you'll need to make sure you're using the right type of CD. Specifically, that means an IRA CD. An IRA CD is a CD account that's funded through an IRA and enjoys its tax benefits.
You can also convert traditional 401(k) balances to a Roth IRA. Generally, you'll only be able to transfer a 401(k) to a Roth IRA if you are rolling over your 401(k), the plan allows in-service withdrawals, or the plan allows in-plan conversions.
You can still roll over the money into another account, but you typically must do so within 60 days. If you have between $1,000 and $7,000, your ex-employer can move the money into an IRA of its choice. If you don't like that IRA, you can always move it.
As a general rule, if you withdraw funds before age 59 ½, you'll trigger an IRS tax penalty of 10%. The good news is that there's a way to take your distributions a few years early without incurring this penalty. This is known as the rule of 55.
You can shift money into a Roth IRA from a traditional IRA or 401(k) by doing a Roth IRA conversion. The amount you convert is added to your gross income for the tax year in which you make the switch. Tax rates in 2025 range from 10% to 37%, and the conversion amount could push you into a higher tax bracket.
This is because contributions to a 401(k) are typically made with pre-tax dollars which is not allowed with Roth IRAs. However, if you're rolling over a Roth 401(k) to a Roth IRA, you'd generally only need to pay taxes on any employer match, unless you move the employer match portion to a Traditional IRA.
Do you pay taxes twice on 401(k) withdrawals? We see this question on occasion and understand why it may seem this way. But, no, you don't pay income tax twice on 401(k) withdrawals. With the 20% withholding on your distribution, you're essentially paying part of your taxes upfront.
While you cannot directly roll over your qualified plans, such as a 401(k) or IRA, into a whole life insurance policy used for Infinite Banking, you can utilize the funds from these plans to help fund a whole life policy. However, this process requires careful planning and may have tax implications.
It means that $15,000 is eligible for lifetime exclusion. This is the amount you can gift away during your lifetime without incurring a gift tax. The total lifetime tax exclusion for gifts is $11.2 million per individual; so, gift tax rules are not much of a concern for most people.
Deferring Social Security payments, rolling over old 401(k)s, setting up IRAs to avoid the mandatory 20% federal income tax, and keeping your capital gains taxes low are among the best strategies for reducing taxes on your 401(k) withdrawal.
The $1,000 per month rule is designed to help you estimate the amount of savings required to generate a steady monthly income during retirement. According to this rule, for every $240,000 you save, you can withdraw $1,000 per month if you stick to a 5% annual withdrawal rate.
Mistake #1: Not Starting Your RMD on Time
The rules for RMD starting ages have undergone changes in recent years, leading to confusion among many individuals. In the past, the starting age for RMDs was 70½. However, as of 2023, the starting age stands at 73 and is set to increase to 75 in the future.
A 401(k) rollover transfers assets from your previous employer's plan directly to another tax-deferred account. With a rollover, you are not withdrawing any money or taking distributions, so you will not have to pay any taxes or penalties as a result.
One of the best options is doing a 401(k) rollover to an individual retirement account (IRA). The other options include cashing it out and paying the taxes and a withdrawal penalty, leaving it where it is if your ex-employer allows this, or transferring it into your new employer's 401(k) plan—if one exists.
If you decide to roll over your entire 401(k) balance, you can roll all your pre-tax dollars into a traditional IRA and all your nondeductible contributions into a Roth IRA. You wouldn't pay taxes on this type of conversion because you already paid taxes on your nondeductible contributions the year you made them.
If you don't roll over your payment, it will be taxable (other than qualified Roth distributions and any amounts already taxed) and you may also be subject to additional tax unless you're eligible for one of the exceptions to the 10% additional tax on early distributions.