When does rolling over a 401(k) end up costing me tax?

By Kaz · Published 28 September 2026 · How this site checks figures

Summary

A rollover costs tax in four cases: pretax money lands in a Roth IRA, a 60-day rollover puts back less than the full distribution, the payment was never eligible to be rolled over, or the 60 days run out. Moving pretax 401(k) money into a traditional IRA or another workplace plan costs nothing in tax, though the move still goes on your federal return.

Reported, not taxed

Topic 413 puts the rule in one sentence: the rollover "isn't taxable (unless the rollover is to a Roth IRA or a designated Roth account from another type of plan or account), but it is reportable on your federal tax return." The plan sends a Form 1099-R even for a direct rollover. Under the IRS's instructions for that form, a direct rollover shows the amount in box 1, zero in box 2a (the taxable amount), and code G in the distribution-code box, which is box 7 on forms for 2025 and box 7a from the 2026 form. A 1099-R in the mail is not a sign that anything was taxed. The guide to Forms 1099-R and 5498 goes through each box.

The situations that do create tax

A Roth IRA on the receiving end. Pretax money rolled into a Roth IRA is added to your income for that year. The IRS's page on leaving a job says you "must include the untaxed amount in your gross income for the year in which you do the rollover." A direct rollover doesn't change that, and on the 1099-R the taxable amount appears in box 2a. The guide to what's taxable in a Roth rollover shows how that amount is worked out.
A short redeposit. When a plan pays you instead of the receiving account, it withholds 20%, and only what you put back within 60 days counts as rolled over. In an example with a $50,000 distribution, $10,000 is withheld and $40,000 reaches you. Redeposit only the $40,000 and the missing $10,000 is income for the year; under 59½ it can also draw the 10% additional tax, $1,000 in this example. Adding $10,000 from other money within the 60 days keeps the full $50,000 a rollover.
A payment that was never eligible. Required minimum distributions and hardship distributions can't be rolled over, so depositing them in an IRA doesn't make them a rollover. The full list of ineligible payments is in the guide to what a rollover is.
Missing the 60 days. Money not redeposited in time is taxed in the year you received it. The IRS does offer relief when the deadline was missed "because of circumstances beyond your control": an automatic waiver in some cases, self-certification under Revenue Procedures 2020-46 and 2016-47 in others, and otherwise a request to the IRS. The rollover deadline calculator gives the exact date.

Roth 401(k) money is the exception

Rolling Roth 401(k) money into a Roth IRA is Roth to Roth and isn't taxed; the 1099-R shows zero in box 2a with code H. Roth money also stays out of the rule for money that isn't rolled over: the IRS's page on leaving a job excludes qualified Roth distributions and amounts already taxed from what becomes taxable.

Sources

Written by Kaz, an independent publisher.
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