PlanRight • Retirement rollover planning
Rollover vs. withdrawal: understand your options before you move retirement money.
Leaving a job or deciding what to do with an old retirement account? Compare keeping eligible money invested through a rollover with taking a cash withdrawal—and estimate the potential federal tax impact.
Same account. Different decisions.
A rollover moves eligible retirement money to another retirement account. A withdrawal puts money in your hands for spending. The tax treatment depends on the account, destination, and distribution.
Direct rollover
An eligible transfer of pretax money to a traditional IRA or accepting employer plan generally preserves tax deferral. That means no current federal income tax on the amount properly rolled over.
The money stays inside a retirement account.
Cash withdrawal
Taxable money you keep generally becomes income for the year. An additional early-distribution tax may apply before age 59½, unless an exception applies.
Your spendable amount may be less than your account distribution.
Rollover vs. withdrawal comparison
This comparison assumes fully pretax money and an eligible distribution.
| What to compare | Direct rollover to a pretax account | Cash withdrawal you keep |
|---|---|---|
| Current federal income tax | Generally none on the eligible amount properly rolled over. | Taxable portion is generally included in income. |
| Before age 59½ | The properly rolled-over amount generally avoids early-distribution tax. | A 10% additional tax may apply; exceptions and special rules matter. |
| Federal withholding | No mandatory 20% withholding on a direct rollover. | Generally 20% on taxable eligible employer-plan distributions paid to you. IRA rules differ. |
| Access to cash | Money stays in the receiving retirement account; its withdrawal rules apply. | Cash is available after withholding and processing. |
| Future taxes | Pretax money generally remains taxable when later distributed. | Future earnings on money invested outside retirement accounts follow applicable tax rules. |
| Key tradeoff | Compare receiving-account costs and benefits with existing-plan features. | Consider taxes, possible additional tax, and reduced retirement savings. |
Roth money, after-tax contributions, employer stock, inherited accounts, and other special situations require separate analysis.
Compare My Retirement OptionsThree-question estimate
Retirement withdrawal tax calculator
See a simplified estimate of what could remain after federal income tax and a potential early-distribution tax.
Assumes a fully taxable pretax distribution, a flat marginal federal rate on the entire amount, and no early-distribution exception. The age question alone cannot determine whether you owe additional tax.
Your illustrative comparison
Select your answers, then calculate your estimate.
Withholding is a tax prepayment and is not subtracted again here. This estimate is not the check you would receive.
Withholding is not your final tax bill
For taxable eligible employer-plan distributions paid to you, federal withholding is generally 20%. It is a payment toward your tax bill, not a separate fee or a determination of what you ultimately owe. Your return reconciles the withholding with your actual taxes.
Illustrative cash example
A $100,000 fully taxable eligible employer-plan distribution with 20% withholding produces an initial $80,000 payment.
At an assumed 22% federal rate, estimated income tax is $22,000. If a 10% additional tax also applies, total estimated federal taxes are $32,000. After crediting $20,000 withheld, another $12,000 would remain in this simplified example.
Estimated amount left after these taxes: $68,000.
IRA withholding is different
The employer-plan 20% rule does not apply to IRA distributions. Nonperiodic IRA payments generally default to 10% federal withholding; you can generally choose another rate, including zero.
Choosing less withholding does not reduce the tax itself. Periodic payments and other distribution types have different rules.
Direct rollover vs. the 60-day rollover
Direct rollover: coordinate the receiving account
For an eligible employer-plan distribution, ask the administrator to pay the receiving IRA custodian or accepting plan directly. A check payable to the receiving institution for your benefit can still qualify even if delivered through you.
Confirm account eligibility, registration, payment instructions, fees, and whether the receiving plan accepts the money. IRA-to-IRA trustee transfers follow a related transfer process.
Roth conversion caveat: Moving pretax money to a Roth account generally creates taxable income, even when handled directly. Roth IRA money cannot roll into a traditional IRA or employer plan.
Indirect rollover: mind the deadline and withholding
If an eligible distribution is paid to you, you generally have 60 days after receipt to complete a rollover. To roll over the full gross amount, replace withheld taxes using other funds.
Example: If $20,000 is withheld from a $100,000 distribution, depositing only the $80,000 received generally leaves $20,000 unrolled and potentially taxable.
A one-rollover-per-12-month limit generally applies to IRA-to-IRA 60-day rollovers across your IRAs. It does not apply to direct trustee transfers, plan-to-IRA rollovers, or Roth conversions. IRS deadline relief may be available in qualifying circumstances.
Under age 59½? Review exceptions before moving money.
An exception can remove the additional early-distribution tax while leaving ordinary income tax due. Eligibility depends on the account, circumstances, documentation, and applicable limits.
The age-55 separation rule
Certain employer-plan distributions can avoid the 10% additional tax if you separate from that employer during or after the calendar year you turn 55. Separating earlier and simply waiting until 55 generally does not satisfy this exception.
This exception does not apply to IRA withdrawals. Rolling that plan into an IRA may remove access to this exception for later withdrawals. Special earlier thresholds may apply to qualifying public safety employees and firefighters.
Governmental 457(b) plans
Distributions generally avoid the 10% early-distribution tax, regardless of age. Amounts attributable to money rolled in from another plan type or IRA can be treated differently.
Rolling governmental 457(b) money to an IRA or another plan type can change the rules for later early withdrawals. Ordinary income tax and plan distribution restrictions still matter. Nongovernmental 457(b) plans have different transfer and rollover restrictions.
Other IRS exceptions may apply
Examples include qualifying death or disability distributions, substantially equal periodic payments, certain medical expenses, IRS levies, qualified reservist distributions, qualifying birth or adoption, terminal illness, domestic abuse, emergency personal expenses, and certain disaster distributions.
Some exceptions are account-specific: qualified higher-education costs, limited first-home costs, and qualifying unemployed health-insurance premiums generally concern IRAs; qualified domestic relations orders generally concern employer plans.
This is not an exhaustive eligibility checklist. Limits, timing, repayment rights, and plan availability vary. A hardship withdrawal by itself does not automatically qualify for an additional-tax exception.
Review the IRS exception chart ↗Which retirement accounts should you review?
Common accounts include 401(k), Roth 401(k), 403(b), governmental 457(b), the Thrift Savings Plan (TSP), traditional and Roth IRAs, SEP IRAs, SIMPLE IRAs, and eligible distributions from profit-sharing, money-purchase, cash-balance, or other pension plans.
These accounts are not interchangeable. Pension payment options, receiving-plan acceptance, Roth status, after-tax basis, inherited accounts, and SIMPLE IRA timing can restrict what moves where. Nongovernmental 457(b) and 457(f) arrangements generally are not eligible for ordinary IRA rollovers.
Bring a recent statement and your plan's distribution notice to your consultation so the actual options can be reviewed.
Review My Account OptionsA clear consultation in three steps
Schedule your conversation
Choose a time to discuss your account, goals, and upcoming decisions.
Compare the choices
Review available plan and IRA options, cash needs, costs, and tax considerations.
Clarify your next step
Identify the questions, account instructions, and tax-professional coordination needed before acting.
Rollover and withdrawal FAQs
Is a rollover the same as a withdrawal?
A rollover places an eligible distribution into another retirement account. A cash withdrawal you keep may create taxable income and an additional early-distribution tax. The destination and transaction details determine the treatment.
Will I pay tax on a direct rollover?
An eligible direct pretax-to-pretax rollover generally preserves tax deferral. A pretax-to-Roth rollover generally creates taxable income. Confirm the receiving account and tax character before proceeding.
Does 20% withholding cover all my taxes?
No. Withholding is credited toward your tax bill. Your actual liability depends on your income, deductions, credits, state rules, and any additional distribution tax. You may owe more or receive a refund.
Can I roll over money after receiving a check?
Often, if the payment is eligible and you meet the generally applicable 60-day deadline. To roll over the full gross distribution, you usually need to replace any withheld amount. A check payable to the receiving custodian for your benefit may instead be a direct rollover.
Does turning 55 make every retirement withdrawal penalty-free?
No. The separation-from-service exception has employer-plan and timing requirements and does not apply to IRAs. Other exceptions may apply, but age alone is not enough.
Should I roll a governmental 457(b) into an IRA?
Review your need for withdrawals before age 59½ first. The move can change early-distribution treatment. Compare access, fees, investments, services, and other plan protections before deciding.
Can I keep some cash and roll over the rest?
Many eligible distributions permit a partial rollover. The taxable portion you keep generally remains income and may face an additional tax. Ask the administrator how partial payments and withholding work.
How accurate is this calculator?
It is an educational illustration using three answers. It applies your selected marginal rate to the full amount and assumes no early-distribution exception. It does not prepare a tax return or determine rollover eligibility.
Make your next retirement move with a clearer picture.
Understand the potential taxes, account rules, and tradeoffs before requesting a distribution. Start with a conversation about your options.
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