How to Roll Over a 401(k) Without Paying a Dime
Somehow people got the idea that rolling over a 401(k) costs money. Maybe it’s because the financial services industry loves charging fees for everything. Maybe folks just confuse taxes with penalties. But here’s the deal: if you do it right, a direct rollover costs nothing. Zero taxes. Zero penalties. Zero account fees. Let me walk you through exactly how I did it.
Step 1: Pick Where You’re Moving the Money
The three big low-cost custodians are Fidelity, Schwab, and Vanguard. All three offer free IRA accounts with no minimum balance. Each one gives you:
- $0 to open an account
- $0 annual maintenance fees
- $0 stock and ETF trading commissions
- Index funds with expense ratios under 0.10%
Pick whichever one appeals to you. The process works pretty much the same across all three.
Step 2: Open Your IRA Online
Go to your chosen custodian’s website and open a Rollover IRA (sometimes called a traditional IRA). You’ll need:
- Your Social Security number
- Driver’s license or state ID
- Employment information
- Names and birthdates for your beneficiaries
The whole application takes maybe 10-15 minutes. You’ll get an account number right away or within a day.
Cost so far: $0
Step 3: Request a Direct Rollover
This step is where people mess up. You want a direct rollover (also called a trustee-to-trustee transfer). Not a distribution check made out to you personally.
Option A: Let your new custodian do the heavy lifting
Fidelity, Schwab, and Vanguard all have rollover assistance services. Call them or use their online rollover portal. Give them:
- Your old 401(k) provider’s name and phone number
- Your old account number
- Rough idea of the balance
Their specialists will reach out to your old provider, request the forms, and walk you through filling them out. This costs nothing.
Option B: Handle it yourself
Call the number on your 401(k) statement and ask for a “direct rollover to an IRA.” They’ll send you a distribution form. Fill it out with:
- Distribution type: “Direct Rollover to IRA”
- Receiving custodian: [Fidelity/Schwab/Vanguard]
- Receiving account number: [Your new IRA account number]
- Custodian’s mailing address: [Your new custodian can give you this]
The check will be made payable to “Fidelity FBO [Your Name]” or something similar. Not directly to you. That’s how it should be.
Cost so far: $0
Step 4: Wait for the Transfer to Complete
Direct rollovers usually take 2-4 weeks. Your old plan sells your investments, cuts a check to your new custodian, and mails it. Some plans do electronic transfers that move faster.
You can track where things stand by:
- Checking your old 401(k) balance (should show $0 when it’s done)
- Watching your new IRA for incoming deposits
- Calling either custodian’s support line
During this period, your money is in transit and not invested. That’s normal and fine. A few weeks out of the market rarely matters over a 20-year retirement timeline.
Cost so far: $0
Step 5: Invest Your Rollover
Once the money arrives, it usually lands in a default money market fund. You’ll need to put it to work in your chosen investments. Your options:
Easiest approach: Pick a single target-date fund matching when you expect to retire. One fund, automatic rebalancing, done.
Three-fund approach:
- U.S. total market index (like FZROX at 0.00%)
- International index (like FZILX at 0.00%)
- Bond index (like FXNAX at 0.025%)
All trades inside your IRA are commission-free at these custodians.
Cost so far: $0
Step 6: Confirm You Don’t Owe Any Taxes
A direct rollover from a traditional 401(k) to a traditional IRA is not a taxable event. Nothing gets 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 send you a 1099-R showing the distribution, with Box 7 indicating it was a rollover (Code G). Your tax software handles this automatically.
Taxes owed: $0
Fee Traps to Watch Out For
Surrender charges: Some 401(k) plans with annuities or insurance products have surrender fees. Look at your plan documents before rolling over.
Closing fees: Not common, but some plans charge $50-$100 to close an account. Annoying but legitimate.
Advisory fees: If someone offers to “help” with your rollover, ask what they charge. Many advisors want 1% of your assets annually for ongoing management. You don’t need that for a straightforward 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. There’s some paperwork and some waiting involved, but no money should change hands except moving from your old account to your new one.
If fees start appearing, if taxes are being withheld, if someone mentions commissions, stop and ask questions. A legitimate rollover is free. Don’t let anyone tell you otherwise.
