Move Your 401(k) Without Paying a Dime. Here’s How

The Zero-Cost Rollover: A Step-by-Step Guide

Somewhere along the way, people got the idea that rolling over a 401(k) costs money. Maybe it’s the financial services industry, always eager to charge fees. Maybe it’s confusion about taxes and penalties. But here’s the truth: a properly executed direct rollover costs nothing. No taxes. No penalties. No account fees. Here’s exactly how to do it.

Step 1: Choose Your Destination

The three major low-cost custodians—Fidelity, Schwab, and Vanguard—all offer free IRA accounts with no minimum balance requirements. Each provides:

• $0 account opening fees
• $0 annual maintenance fees
• $0 stock and ETF trading commissions
• Access to index funds with expense ratios under 0.10%

Pick whichever appeals to you. For this guide, the process is nearly identical across all three.

Step 2: Open Your IRA Online

Visit your chosen custodian’s website and open a Rollover IRA (also called a traditional IRA). You’ll need:

• Social Security number
• Driver’s license or state ID
• Employment information
• Beneficiary names and birthdates

The application takes 10-15 minutes. You’ll receive an account number immediately or within 24 hours.

Cost so far: $0

Step 3: Request a Direct Rollover

This is the critical step. You want a direct rollover (also called a trustee-to-trustee transfer), not a distribution to yourself.

Option A: Let your new custodian handle it

Fidelity, Schwab, and Vanguard all offer rollover assistance. Call or use their online rollover portal to provide:

• Your old 401(k) provider’s name and phone number
• Your old account number
• Approximate balance

Their specialists will contact your old provider, request the appropriate forms, and guide you through completion. This service is free.

Option B: Contact your old 401(k) directly

Call the number on your 401(k) statement. Request a “direct rollover to an IRA.” They’ll provide a distribution form. Complete it with:

• Distribution type: “Direct Rollover to IRA”
• Receiving custodian: [Fidelity/Schwab/Vanguard]
• Receiving account number: [Your new IRA account number]
• Custodian’s mailing address: [Provided by your new custodian]

The check will be made payable to “Fidelity FBO [Your Name]” or similar—not to you directly. This is correct.

Cost so far: $0

Step 4: Wait for the Transfer

Direct rollovers typically complete in 2-4 weeks. Your old plan liquidates your investments, cuts a check to your new custodian, and mails it. Some plans offer electronic transfers that complete faster.

You can track progress by:

• Checking your old 401(k) balance (should show $0 when complete)
• Monitoring your new IRA for incoming deposits
• Calling either custodian’s support line

During this period, your money is in transit and not invested. This is normal. The few weeks of being out of the market rarely matter over a 20-year retirement timeline.

Cost so far: $0

Step 5: Invest Your Rollover

Once funds arrive, they typically sit in a default money market fund. You’ll need to invest them in your chosen allocation. Options:

Simplest approach: A single target-date fund matching your expected retirement year. One fund, automatic rebalancing, done.

Three-fund approach:

• U.S. total market index (e.g., FZROX at 0.00%)
• International index (e.g., FZILX at 0.00%)
• Bond index (e.g., FXNAX at 0.025%)

All trades within your IRA are commission-free.

Cost so far: $0

Step 6: Confirm No Taxes Are Due

A direct rollover from traditional 401(k) to traditional IRA is a non-taxable event. No taxes are withheld. No penalties apply. When you file your tax return, you’ll report the rollover on Form 1040, but the taxable amount is zero.

Your new custodian will issue a 1099-R showing the distribution, with Box 7 indicating it was a rollover (Code G). Your tax software will handle this automatically.

Taxes owed: $0

Common Fee Traps to Avoid

Surrender charges: Some 401(k) plans with annuities or insurance products charge surrender fees. Check your plan documents before rolling over.

Closing fees: Rare, but some plans charge $50-$100 to close an account. This is a legitimate (if annoying) cost.

Advisory fees: If an advisor offers to “help” with your rollover, ask about fees. Many charge 1% of assets annually for ongoing management. This is not required for a simple rollover.

The Bottom Line

A direct rollover from your 401(k) to an IRA at a low-cost custodian should cost you nothing: no taxes, no penalties, no account fees, no commissions. The process requires some paperwork and patience, but no money changes hands except from your old account to your new one.

If anyone suggests otherwise—if fees start appearing, if taxes are being withheld, if commissions are mentioned—stop and ask questions. A legitimate rollover is free. Don’t let anyone convince you otherwise.