Do my 401(k) investments move over as they are, or get sold first?

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

Summary

The IRS allows either, but the 401(k) rollover instructions from Fidelity, Vanguard and Schwab describe only a check or a wire, and both move cash, so the holdings are sold in the old plan before the money leaves. When the money arrives it sits uninvested (at Vanguard, in the IRA's settlement fund) until you choose what to buy. Employer stock is the case where an in-kind move comes up, covered below.

What the IRS allows

The IRS describes a rollover as withdrawing "cash or other assets" from one plan and putting it into another. On leaving a job, "if your distribution includes property, you can either roll over the property to the new plan or IRA or sell the property and roll over the proceeds."

That settles the tax question, not the logistics. Your old plan may or may not hand over fund shares, and the new custodian may or may not accept them. None of the three custodians' 401(k) rollover pages explains how to bring 401(k) holdings over in kind. They give payee lines, mailing addresses, and wire codes. Fidelity does describe moving "stocks, bonds, mutual funds, and other security types" without selling, but that passage is about transferring an existing account, not rolling over a 401(k).

The exception: company stock

All three custodians single out employer shares. Fidelity asks you to call first "so that we can discuss how to include them in your rollover." Vanguard warns that company stock "may add a layer of complexity." Schwab is more direct: "Rolling over company stock may have negative tax implications." The tax issue is net unrealized appreciation, explained in the article on NUA.

Arriving as cash

Vanguard's answer to "Do I have to select specific investments for my IRA right away?" is "No. The check will automatically be deposited into the settlement fund in your IRA." That's convenient, and it's also how money ends up sitting there. Fidelity states the difference from a 401(k) directly: "Unlike a 401(k), investments aren't automatically made when money moves into an IRA." Nothing in the IRA buys a fund until you place the order.

Add the transit time, which Vanguard puts at 2–4 weeks for most rollovers, and the money can be out of the market from the day the old plan sells until the day you place trades in the IRA. What the new account charges once you do invest is covered on the page about where the money actually goes.

Sources

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